Asian currencies moved only marginally on Tuesday as a historic United States-North Korea summit took place in Singapore, while investors weighed how to position themselves for major central bank meetings later this week. US President Donald Trump said the summit with North Korean leader Kim Jong Un was "better than anybody could have expected", and Kim called it "a good prelude to peace."
Analysts said that if the summit had not gone well, that could have hurt emerging currencies, but most had anticipated a positive result. "It seems markets have priced in some of the good results," said Qi Gao, FX strategist at Scotiabank. Saktiandi Supaat, head of FX research at Maybank in Singapore, said in a report that "Whether the market positivity can last beyond this week would be dependent on future negotiations and dynamics of US-China relations."
While most Asian currencies were flat on Tuesday, the South Korean won inched higher. Scotiabank's Gao said coming monetary policy statements of the Federal Reserve and the European Central bank will be more important for Asian currencies. The Fed is expected to hike its interest rates for the second time this year at its policy meeting on Tuesday and Wednesday. Some analysts believe the Fed will hint at raising rates a total of four times during 2018.
The ECB, which meets on Thursday, could signal intentions to start unwinding its massive bond purchasing programme. Chang Wei Liang, FX strategist at Mizuho Bank, said there is a growing possibility of a policy shift from the ECB, which could signal conclusion of its asset purchase programme. Last week, the ECB's chief economist said it will debate whether to end bond purchases later this year, a hawkish message that hit emerging markets. "There is a high likelihood of FX volatility picking up in the coming week," Mizuho's Chang said.
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