BENGALURU/SINGAPORE- Most Asian currencies and stocks closed the week lower, as a hawkish US interest rate outlook weighed on investor sentiment.
The Indonesian rupiah gained 0.6 percent on Friday after a five-session losing streak, but ended the week near a four-month low. Thailand’s baht was down 0.1 percent, its first weekly loss in five.
After the Federal Reserve cut interest rates as expected on Wednesday, central banks in Indonesia, Thailand, and Taiwan maintained status quo to address currency and global economic uncertainty concerns, while the Bangko Sentral ng Pilipinas cut rates.
The MSCI’s emerging markets currency index has plummeted 0.6 percent this week, threatening to hit a fresh four-month low if it breaks below Thursday’s low.
Meanwhile, Fed Chair Jerome Powell’s comments linking future rate cuts to inflation progress prompted investors to scale back policy easing expectations, implying only 37 basis points of cuts in 2025 and sending the dollar to a two-year high against major currencies.
Central bankers across Asia, from South Korea to India to Indonesia, swiftly responded on Thursday, intervening in markets by selling dollars to defend their currencies.
Emerging-market assets are likely to remain under pressure as long as the US dollar and Treasury yields stay elevated and the threat of tariffs from the Trump administration persists.
“As a result of the incoming trade tariffs next year contributing to stronger re-inflation bias, we expect the US dollar to strengthen further against most major FX peers in 1H25,” said Heng Koon How, head of markets strategy at UOB in Singapore.
“Asian FX are expected to perform even weaker, to fall alongside the Chinese yuan for the first three quarters of 2025 before stabilizing in 4Q25.”
The Philippine peso and Manila stocks rose 0.4 percent and 0.2 percent, respectively, after BSP Governor Eli Remolona said the central bank was open to cutting rates at its first policy meeting in 2025.
