Asia FX, dollar muted ahead of Warsh speech; won hits 13-mth high post BOK hike

Asian currencies remained relatively stagnant on Friday as traders refrained from significant investments prior to Federal Reserve Chair Kevin Warsh's address at the Jackson Hole symposium. In contrast, the South Korean won surged to a 13-month peak following the Bank of Korea's consecutive interest rate increase. The dollar settled near a one-week zenith, with the Dollar Index remaining unchanged at approximately 99.18, poised for a weekly increase of around 0.4%.

Investors were awaiting Warsh's comments for insights into the Fed's policy trajectory, especially after inflation figures suggested the possibility of additional tightening measures. Market expectations for a Federal Reserve rate hike in September stood at 35%, while the probability of a hike by December had risen to around 75%, according to CME FedWatch.

This has maintained U.S. Treasury yields at elevated levels, restricting the potential for gains in Asian currencies. The South Korean won emerged as the most notable performer, with the USD/KRW pair declining 0.3% to 1,377.0 won, its lowest point since July 2025. This decline followed the Bank of Korea's decision to raise its benchmark rate by 25 basis points to 3% on Thursday, marking the central bank's second consecutive rate hike and elevating borrowing costs to their highest since February 2025.

The Bank of Korea also raised its 2026 growth forecast to 3.3% from 2.6%, citing robust exports and semiconductor demand driven by the artificial intelligence boom. Bank of Korea Governor Shin Hyun-song indicated that further tightening might occur, but it would likely be gradual as policymakers evaluate the effects of recent actions.

The Australian dollar benefited from the sentiment, with the AUD/USD pair reaching a three-month high. Stronger-than-expected consumer inflation data this week bolstered expectations that the Reserve Bank of Australia could implement another rate hike this year. The AUD/USD pair was anticipated for a fifth straight weekly gain. Meanwhile, the Japanese yen's USD/JPY remained relatively flat at 159.40 yen, on track for a weekly rise of 0.3%.