Asian currencies rose slightly on Monday, recovering some lost ground from last week as the dollar retreated, although China’s commitment to maintaining its strict zero-COVID policy dented the yuan The Chinese currency fell 0.1%, coming close to breaching the 7.2 level against the dollar after President Xi Jinping said the country has no plans to scale back its zero-COVID policy The policy, which prompted a series of strict lockdowns this year, is at the heart of China’s recent economic slowdown The Chinese president’s comments, which were made during the 20th National Congress of the Chinese Communist Party, also come during a resurgence in infections in Shanghai But Xi also promised more stimulus measures to help support economic growth in the coming months, which kept losses in the yuan limited. The offshore yuan rose 0.2%, but traded near lows last seen during the 2008 financial crisis.

Broader Asian Currencies Benefited From Some Easing In The Dollar Index, Which Fell 0.3% On Monday. Dollar Index Futures Also Retreated By a Similar Margin.

Still, expectations of sharp U.S. interest rate hikes kept regional sentiment negative, with markets pricing in a nearly 100% chance of a 75 basis point hike by the Fed in November. Hotter-than-expected U.S. inflation data last week had boosted the dollar and spurred sharp losses in most Asian currencies The Japanese yen, one of the worst-hit currencies by dollar strength this year rose 0.1%. But the yen remained close to levels last seen in 1990, as the gap between local and U.S. interest rates widened The South Korean won rose 0.4%, helped by data showing that the country logged steady export growth in September. But the reading was still at its weakest level since November 2020, as South Korean factories continue to struggle with headwinds from increased raw material prices A slowdown in China, the country’s largest trading partner, has also weighed on the South Korean economy this year.

Strength in the dollar, coupled with weakening economic trends in China and other regional markets have sapped appetite for Asian currencies this year, with several units hitting record lows against the greenback. This trend is expected to continue in the near-term, as the U.S. central bank keeps hiking interest rates Elsewhere the British pound jumped 0.6% after British Prime Minister Liz Truss partially scaled back her government’s controversial economic plan. The government will now raise corporate taxes to help support dwindling government finances Focus is also on how the UK bond market will trade, after the Bank of England withdrew its support for debt markets on Friday. Gilt yields are currently at an all-time high.