Asian currencies slip as traders trim Fed rate cut bets

BENGALURU: Emerging Asian currencies and stocks eased on Wednesday after hot US inflation prompted traders to push back expectations of imminent interest rate cuts by the Federal Reserve, while presidential elections in Indonesia remained in focus.

The South Korean won fell 0.7% to its lowest in three weeks, while the Thai baht weakened as much as 0.3% to a three-month low.

Malaysia’s ringgit fell 0.4% and the Philippine peso retreated 0.5%.

Data on Tuesday showed US consumer prices rose more than expected in January and the increase was the largest in four months, clouding hopes of the Fed cutting rates sooner.

Futures now point to about 87 basis points of easing priced in for the Fed this year, as compared to 110 bps prior to the data release.

The dollar traded near a three-month high against major peers and US Treasury yields also surged overnight.

“There were clear upside risks for the USD, although markets were likely getting a bit weary of Fed pushback without the support of data,” analysts at Maybank wrote.

“We caution that while the US exceptionalism continues to provide buoyancy for the USD in Feb, we could be facing peak growth divergence between the US and the rest of the world within this quarter.”

In Asia, markets in Indonesia were closed on Wednesday, with citizens casting their ballots in the world’s biggest single-day election, headlined by the race to succeed President Joko Widodo.

The presidential race pits two former governors, Ganjar Pranowo and Anies Baswedan, against controversial frontrunner Prabowo Subianto.

Two surveys last week projected Prabowo will win the majority of votes and avoid a second run-off in June.

“Given that there have already been much discontent within the country’s Cabinet, the delay of a clear leadership could leave policies on a standstill and the lack of clarity may drive some near-term shunning from foreign investors,” Yeap Jun Rong, market analyst at IG, wrote.

Stock markets in the region tracked overnight losses on Wall Street.

Seoul stocks dropped 1%, and stocks in Singapore fell as much as 1.6% to their lowest in nearly two months.

Equities in Malaysia, Thailand and India fell between 0.4% and 0.6%.

The Philippine central bank’s monetary policy decision due on Thursday remains on local investors’ radar. Economists expect the bank to stay on hold and expect a first rate cut in the third quarter of 2024, according to a Reuters poll.

Markets in China are closed for the Lunar New Year holidays and will resume trade on Monday, Feb. 19.