BENGALURU: Asian emerging market currencies dropped on Friday as the US dollar and treasury yields strengthened ahead of the Federal Reserve meeting next week, while regional equities were mixed, with Indonesian stocks losing ground.
The MSCI emerging markets currency index was largely flat.
The Indonesian rupiah weakened 0.5% to hit a four-month low, prompting the central bank to intervene in the foreign exchange market to maintain confidence in the rupiah.
The Philippine peso, Thai baht and South Korean won dipped 0.2% each.
The US dollar climbed to 107.05 for the first time since Nov. 26, and hit its highest point in more than two weeks.
Some softness in US producer price inflation on Thursday supported market convictions of 25-basis-point cut from the Fed next week, despite a stronger headline figure.
Market estimates an around 96% chance of a quarter-point cut, marginally below the nearly 99% priced in before the data was released on Thursday.
The market will be watching out for the consensus between the Federal Open Market Committee (FOMC) members and if it will change to a little bit more dovish tone which might result in a slight reversal for the US dollar, said Junvum Kim, a sales trader at Saxo Capital Markets.
“EMFX has recently gained sensitivity to fluctuations in the US real yields. We believe this process can drag more vulnerable EM currencies to weaker levels, depending on markets’ perception of US growth (and Fed reaction function),” Citi analysts wrote.
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