Asian currencies retreat after hot US inflation, South Korean stocks slip 8%

Most emerging Asian currencies weakened on Thursday after hotter-than-expected US inflation fanned expectations of a Federal Reserve rate hike, spooking AI-linked stocks worldwide over higher borrowing costs.

 The South Korean won fell over 1% to a two-week low of 1,352.84 per dollar, while the Taiwan dollar fell sharply to 32.325, its weakest since early August. A steep selloff in chip stocks in the two countries pressured their currencies.

South Korea’s KOSPI tumbled over 8%, triggering a circuit breaker for the first time in 2-1/2 months.

Samsung Electronics and SK Hynix, the world’s leading memory chipmakers, dived nearly 10% and 12%, respectively, in their worst day since late July.

Taiwan stocks also fell 3.8% to a near one-month low. TSMC also shed nearly 3% to hit its lowest since late September.

“The won’s pullback looks more like technical consolidation than a trend reversal, with position-squaring and profit-taking natural after the run to a two-year high,” said Inki Cho, senior financial market strategist at online trading platform Exness.

“The Taiwan dollar’s slide tells a different story. Foreign investors have extended their selling streak in Taiwan stocks while yield spreads widened as the Fed tightened and Taiwan’s central bank stayed on hold.”

In Southeast Asia, the Philippine peso hit a record low of 63.09 per dollar, pressured by high oil prices, El Niño risks on food prices, high inflation and weak growth, and a deteriorating current account position.

“We expect further peso weakness,” Goldman Sachs analysts wrote on Thursday. They reiterated their call for two additional quarter-point rate hikes by the Bangko Sentral ng Pilipinas (BSP), with the first expected next week.

“A large current account deficit and weaker portfolio and FDI inflows leave the currency vulnerable. We also expect the BSP to be cautious about drawing down reserves further to support the peso,” Goldman Sachs analysts said.

US consumer prices rose faster than expected last month, data showed late Wednesday, raising expectations for additional Fed rate hikes, possibly as soon as this month.

Fed rate hikes tend to boost the US dollar, putting pressure on emerging market currencies, fuelling capital outflows from their bond and stock markets, and increasing borrowing costs for dollar-denominated debt.

The US dollar index, which measures the greenback against a basket of major currencies, scaled a fresh 18-month high after the inflation data but gave up most of those gains following cautious remarks from Federal Reserve officials.

In Indonesia, the rupiah slipped to 17,955 a dollar, while stocks fell more than 2%.

Singapore stocks declined around 1% to a three-month low, with top lenders DBS Group and OCBC slipping about 1% each.

Meanwhile, the Indian rupee ticked higher to 94.885 at open. Traders told Reuters that the central bank is likely to continue selling dollars via state-run banks to support the currency.