Asian Currencies and Stocks Slide on Hawkish US Rate Outlook

Asian currencies and stocks declined further on Friday, poised to close the week lower, as a hawkish U.S. rate outlook dampened investor sentiment. The Malaysian ringgit and Thailand's baht weakened the most among Asian currencies, losing 0.2% each. The ringgit was on track for a tenth consecutive session of declines, although it remains the only currency among its Asian peers projected to end the year stronger.

The Indonesian rupiah traded largely flat but was set to end the week near a four-month low, having weakened nearly 8% since its September peak. The baht was headed for its first weekly loss in five. Following the Federal Reserve's expected interest rate cut on Wednesday, central banks in Indonesia, Thailand, and Taiwan maintained their current rates to address concerns about currency and global economic uncertainty, while the Bangko Sentral ng Pilipinas cut rates. The MSCI's emerging markets currency index plummeted 0.6% this week, threatening a fresh four-month low if it falls below Thursday's level. Meanwhile, Fed Chair Jerome Powell's comments linking future rate cuts to inflation progress prompted investors to scale back policy easing expectations, suggesting only 37 basis points of cuts in 2025, and pushing the dollar to a two-year high against major currencies. Central bankers across Asia, from South Korea to India to Indonesia, swiftly responded on Thursday, intervening in markets by selling dollars to support their currencies. Emerging-market assets are likely to remain under pressure as long as U.S. dollar and Treasury yields stay elevated and the threat of tariffs from the Trump administration persists. 'As a result of the incoming trade tariffs next year contributing to stronger re-inflation bias, we expect the U.S. dollar to strengthen further against most major FX peers in 1H25,' said Heng Koon How, head of markets strategy at UOB in Singapore

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