Asia FX: Fed repricing pressures regional currencies – MUFG
MUFG’s Lloyd Chan notes that markets are reassessing Federal Reserve policy after Chair Warsh’s Jackson Hole speech, with higher US rate expectations lifting the Dollar and shifting focus to whether inflation remains sticky enough to warrant tightening.
Federal Reserve Chair Jerome Warsh's Jackson Hole speech sent ripples through regional currencies in Asia, as investors reassess the implications of higher US rate expectations, according to MUFG's Lloyd Chan. The Dollar has shown signs of strength, but this shift may pose challenges for several regional currencies. Following Warsh's hawkish remarks, markets are now focused on whether inflation remains sticky enough to warrant policy tightening.
While the recent dollar weakness provided some support for Asia FX, the new economic backdrop could prove more difficult for several regional currencies this week. Singapore Dollar (SGD) and Malaysian Ringgit (MYR) remain relatively more resilient than initially suggested by US rate differentials. Indonesia's rupiah has benefited from higher US yields, but ongoing domestic concerns could further pressure the currency if US Treasury yields continue to rise.
The Philippine peso continues to struggle as markets grapple with the delicate balance between taming inflation and sustaining growth. Among ASEAN currencies, the Thai Baht and Indonesian Rupiah appear particularly vulnerable to the increasing expectations of US rate hikes. Thailand's economy faces limited yield support, while rising Brent oil prices weigh on its external balance.
Thailand's central bank seemed comfortable in maintaining a growth-oriented stance despite inflationary pressures last week. Meanwhile, recent measures to curb gold-related flows might lessen support for the Thai Baht.
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