Asian currencies weaken as investors focus on Fed outcome

Most Asian currencies weakened on Wednesday, as investors stayed cautious ahead of a key U.S. Federal Reserve decision that could determine the path of policy tightening for the region’s central banks, Reuters reported.

The South Korean won KRW=KFTC, Asia’s worst-performing emerging-market currency so far this year, declined a further 0.4%.

South Korea’s two top officials, however, shrugged off the won’s recent fall to a 13-year low in a subtle change of stance amid growing signs of benefit from a weaker local currency and easing global raw material prices.

The Philippine peso PHP=, Indonesia’s rupiah IDR= and the Thai baht THB=TH slid between 0.2% and 0.6%, despite a softer U.S. dollar.

The Fed is expected to announce a 75-basis-point interest rate hike to tackle inflation running at the fastest pace in four decades, but investors are wary of a surprise in either direction. Futures imply about a 15% chance of a 100-bp hike. MKTS/GLOB

Focus will also be on the press conference by Fed Chair Jerome Powell for clues on future rises, amid concerns that aggressive tightening could tip the economy into a recession.

Most Asian central banks, while still lagging the Fed, have begun to normalise their pandemic-era monetary policies. The only major exceptions are Bank Indonesia (BI) and the Bank of Thailand (BoT).

Earlier this week, the BoT governor said the central bank would gradually raise interest rates to curb higher inflation, while BI left its policy interest rate unchanged at a record low last week.

Most stock markets in the region reversed losses recorded in early trades. Stocks in Mumbai .NSEI, Taipei .TWII and Kuala Lumpur .KLSE were all up.

Shares in Bangkok .SETI rose nearly 1% to hit their highest since July 8. Thailand’s customs-based exports in June rose 11.9% from a year earlier, compared with a forecast for an increase of 8.5% in a Reuters poll.