Chinese Yuan Slips, Asia FX Muted as Dollar Steadies

China’s yuan led losses across Asian currencies on Tuesday amid growing concerns over Beijing’s political climate, while broader Asian currencies moved little as the dollar steadied from recent losses.

The yuan slipped 0.6% to 7.3084 – its weakest level against the dollar since late-2007. The currency extended its losses from Monday after the People’s Bank of China fixed a softer-than-expected daily midpoint for the currency.

Losses in the yuan were triggered after President Xi Jinping secured a third consecutive leadership term on Sunday, and unveiled a cabinet consisting largely of loyalists.

The move drove concerns that Xi could now face zero resistance in rolling out disruptive policies, especially after the President reiterated his commitment to maintaining the strict zero-COVID strategy.

Chinese stocks were also sold off heavily, while the offshore yuan slumped to a record low of 7.3735 on Tuesday.

Broader Asian currencies fell slightly as the dollar steadied despite growing expectations that weakening economic growth will push the Federal Reserve into softening its hawkish stance.

While the central bank is still widely expected to raise interest rates by 75 basis points in November, traders trimmed their bets that it will enact a similar hike in December.

Focus is now on U.S. third-quarter GDP data this week, which is expected to reflect the impact of rising interest rates on the world’s largest economy.

The dollar index traded sideways on Tuesday, as did dollar index futures. Both indicators appeared to have curbed a 3-day losing streak.

The Indian rupee hovered around record lows, while the Japanese yen recovered slightly from a 32-year low, amid reports that the government had intervened in currency markets for a second time this year.

South Korea’s won bucked the trend, surging 0.8% as traders positioned for more currency market intervention by the government. The won was trading near 13-year lows.

The Singapore dollar fell 0.1%, even as data showed core CPI inflation grew more than expected in September. The Monetary Authority of Singapore also hiked its annual inflation forecast, which likely indicates that the central bank will keep tightening monetary policy in the near-term.