Emerging Asian currencies and stocks fell on Wednesday as sentiment was hit by ratings agency Fitch’s downgrade of the United States’ top credit rating.
In Thailand, the baht weakened 0.4% as markets awaited the central bank policy decision later in the day.
The Bank of Thailand (BoT) is expected to deliver a final 25-basis-point interest rate increase and then hold rates steady until 2025 as the inflation outlook remains high, a Reuters poll showed.
“The arguments for hiking look weak – inflation remains rock-bottom … and the baht has been one of the region’s best-performing currencies and the customs trade balance recovered to a small surplus in June,” analysts at ING said in a note.
“What this means is that a pause is not unthinkable.”
Most Asian currencies slip ahead of likely Fed hike
The dollar index rose 0.2% following the release of relatively strong economic data, although it struggled to make headway after Fitch unexpectedly downgraded the US government’s top-tier sovereign credit rating.South Korea’s won slipped 0.9%, while Indonesia’s rupiah and Malaysia’s ringgit fell 0.4% each.
Investors are focused on pledges of stimulus by Chinese authorities as the world’s second-largest economy and the region’s biggest trading partner looks to shore up a faltering economy.
The People’s Bank of China said on Tuesday the country will lower financing costs for firms, stabilise market expectations and support the property sector in coming months.
Moreover, in a bid to ease pressure on the yuan, Chinese currency regulators have in recent weeks asked some commercial banks to reduce or delay their dollar purchases, Reuters reported on Tuesday.
The currency eased 0.1%, while equities dropped 0.8%.
“We can expect consolidation in USD/Asia to continue, led of course by the yuan which is doing its best to establish a stable footing,” analysts at UOB said in a note.
Among the region’s stock markets, South Korea’s benchmark index slumped 1.5%. Equities in Manila, Jakarta and Singapore retreated between 0.6% and 1.4%.
Separately, South Korea’s consumer inflation cooled more than expected in July to its slowest in 25 months, official data showed, supporting market views that the monetary tightening cycle was over contrary to the central bank’s hawkish rhetoric.