Asian FX Slips as Fed Hawks, Singapore Growth Concerns Weigh

By Ambar Warrick 

Investing.com-- Asian currencies fell on Thursday as commitments from Federal Reserve officials to keep hiking rates despite a tempering in inflation pushed up the dollar, while a worsening growth outlook for Singapore also weighed. 

The Chinese yuan sank nearly 0.3%, while the Japanese yen lost 0.2%. Most other Asian currencies were trading negative, after logging some gains on Wednesday. 

As of 2321 ET (0321 GMT), the U.S. dollar index rose 0.2% after logging a 1.1% loss on Wednesday. Dollar index futures were up 0.2% after a similar band of losses.   

Minneapolis Fed President Neel Kashkari said while Wednesday’s softer-than-expected U.S. inflation report was a positive sign, the central bank is set to keep tightening policy until its inflation target is met, Reuters reported.

This could see the target rate reach up to 4.4% by the year-end. While Kashkari is considered to be the most hawkish Fed member, others also expect interest rates to keep rising, albeit at a slower pace. 

Stock markets rallied after the report, with traders now pricing in a 50 basis point hike by the Fed during its next meeting- lower than initial expectations of a 75 point hike. 

In Asia, the Singapore dollar fell 0.1% after the island state narrowed its annual economic growth forecast to 3% to 4%, from 3% to 5%. The country also revised its second quarter GDP figure lower, citing increased headwinds from global economic weakness.

A bulk of these headwinds come from China, which is the largest trading partner of Singapore. The mainland economy is struggling to recover from a series of COVID-19 lockdowns this year.  

The Thai baht was flat after the central bank raised rates on Wednesday, and kicked off a monetary tightening cycle. 

The baht has recovered steadily from lows hit this year, amid improving prospects for the Thai economy. The central bank also signaled that a modest pace of rate hikes were needed to combat rampant inflation.

A dip in oil prices benefited Indonesia’s rupiah, which rose 0.5%.