HONG KONG, June 26 — The South Korean won and the Taiwan dollar headed for a third day of gains today, as the US dollar came under some pressure after a subdued inflation outlook capped US bond yields and raised questions about Federal Reserve plans to tighten policy.

Yields on the benchmark 10-year Treasury note rose briefly after the Fed tightened policy this month but have drifted lower since then, as expectations of low inflation continued to boost demand for longer-dated debt.

"US dollar weakness is driven by market expectations of US Fed rate hike cycle weakening on weaker inflation outlook and delayed fiscal outlook,” said Mathan Somasundaram, Sydney-based market portfolio strategist at Blue Ocean Equities in a note.

On the political front, investors will be watching the vote on a US Senate healthcare bill to replace Obamacare. But with as many as five Republican senators opposing the bill, getting a vote by the end of this week could be difficult.

"Another US health care fail may be another negative catalyst for the USdollar," Somasundaram added.

Today, the won led gains in the region, strengthening as much as 0.4 per cent against the US dollar, buoyed by a stock market rally that saw South Korean shares close at a record high.

The Korea Composite Stock Price Index (Kospi) ended up 0.4 per cent to 2,388.66, led by big gainers for major technology shares.

Positive sentiment was also underpinned by the South Korean central bank saying the country's South Korea's economy is expected to see gradual improvement this year.

The Taiwan dollar was the other big gainer in the region, climbing as much as 0.4 percent in its biggest intra-day percentage rise in one month.

Taiwan May industrial output expanded 0.8 per cent year-on-year, data released by the island's Ministry of EconomicAffairs showed.

Most other emerging Asian currencies were flat to lower on a day when many Asian financial markets were closed to celebrate holidays at the end of the Muslim fasting month.

The yen drifted marginally lower after four-straight sessions of gains.

The yuan dipped 0.1 per cent against the dollar, heading for its eighth-straight day of losses in what would be its longest such streak since October 2016.

A surge in the yuan's value at the end of May had been largely engineered by the authorities, but traders have shifted their focus to economic fundamentals and have doubts regarding how long the central bank will keep money rates high.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.89, weaker than the previous day's 94.1. — Reuters