Asian currencies rally as Fed keeps rate cut projections

BENGALURU: Asian currencies rallied on Thursday against a broadly weaker dollar, while stocks in the region gained after the US Federal Reserve maintained its projections for three interest rate cuts for this year.

The South Korean won led gains in the region, up as much as 1.1% for its biggest intraday gain since Dec 14, 2023. The Malaysian ringgit followed suit, jumping as much as 0.9% to hit 4.696 per US dollar, its largest intraday gain since March 7.

On the stock market front, Taiwan shares rallied as much as 2% to a fresh record high, while those in Singapore advanced 1.1% to hit their highest level since Feb 23.

Overnight, the Federal Reserve stayed on track for three interest rate cuts this year and affirmed that solid economic growth will continue. “I think what the Fed tried to say from the new economic projection as well as the new Dot Plot is that they feel more confident in overall economic resilience,” Poon Panichpibool, a markets strategist at Krung Thai Bank, said.

Traders had earlier braced for the possibility the Fed’s economic projections could signal just two rate cuts this year, or a later start to easing of monetary policy.

The CME FedWatch tool showed the market is pricing in a 75% chance of a Fed rate cut in June, compared to around 56% at the beginning of the week.

“The Fed’s decision could allow Asian central banks except for the BOJ to deliver some rate cuts if needed from June,” Panichpibool said, adding that most policymakers in the region may not want to ease too soon given concerns over their respective currencies’ stability.

Indonesia stocks were trading 0.7% higher while the rupiah was up 0.4%, a day after the country’s central bank held its key benchmark rate steady and reaffirmed its conviction that monetary policy could be eased in the second half.