Most Asian currencies fell on Monday amid growing uncertainty over U.S. monetary policy and interest rate hikes, with the Chinese yuan retreating ahead of a widely expected rate cut this week.

Markets were awaiting fresh cues on U.S. rate hikes from a testimony from Federal Reserve Chair Jerome Powell on Wednesday, after the Fed paused its rate hike cycle but flagged at least two more hikes this year.

The dollar saw some strength in Asian trade, with the dollar index and dollar index futures up about 0.1% each.

This also saw most Asian units extend a losing streak seen since last week, as markets began pricing in a high chance of a rate hike from the Fed in July.

Chinese yuan sinks ahead of loan prime rate cut

The Chinese yuan fell 0.3% and was among the worst-performing Asian currencies on Monday as markets priced in a potential cut in the benchmark loan prime rate on Tuesday.

The People’s Bank of China is widely expected to cut its benchmark rate after trimming both short and medium-term rates last week, as Beijing struggles to shore up a slowing economic recovery.

Goldman Sachs (NYSE:GS) slashed its 2023 gross domestic product outlook for China on Sunday, joining a cadre of other investment banks in cutting their outlook for a Chinese economic recovery this year. The move comes after a string of weaker-than-expected Chinese economic readings for April and May raised doubts over a post-COVID economic rebound in the country.

An interest rate cut is expected to weigh heavily on the yuan, especially as the gap between local and U.S. interest rates widens.

Markets also took few cues from a meeting between top-level U.S. and Chinese ministers over the weekend, as both parties flagged little progress towards defusing tensions between the world’s largest economies.

Powell testimony, Fed speakers weigh on Asian currencies

Fears of rising U.S. interest rates kept broader Asian currencies on the back foot, especially after the Fed raised its forecast for peak U.S. interest rates this year.

The Japanese yen was flat at near seven-month lows to the dollar, while the Australian dollar sank 0.5%. The rate-sensitive South Korean won fell 0.4%, while the Thai baht led losses across Southeast Asia.

Powell is set to testify before Congress on Wednesday, and could potentially offer more cues on the Fed’s forecast for higher interest rates this year. A string of other Fed speakers are also on tap this week.