Emerging markets: Philippine peso weakens between 0.2% and 0.5% as S. Korean shares hit 13-month low ahead of Fed meeting


MANILA Jan 24 (Reuters): South Korean shares hit a 13-month low on Monday, leading losses among Asia's emerging stock markets as risk appetite waned on fears the US Federal Reserve could adopt a more aggressive stance on policy tightening at its meeting later this week.

The dollar index, which measures the greenback against six major peers, was steady at 95.783, while the yuan gained 0.1%. Asian currencies were weaker. India's rupee, South Korea's won and the Philippine peso weakened between 0.2% and 0.5%.

Meanwhile, market participants were cautious ahead of the Fed's rate-setting Federal Open Market Committee meeting, where some analysts have started to speculate it is possible, though unlikely, that interest rates will be hiked for the first time since the pandemic began.

Equities in Seoul dropped 1.5% to their lowest close since December 2020 while shares in Mumbai and Jakarta fell 1.8% and 1%, respectively, after major Wall Street indexes slumped at the end of last week.

"Central bankers in Asia will certainly pay attention (to the Fed meeting). The harder the Fed hits the brakes, the more monetary officials in the region will have to swerve to avoid skidding off the road," Frederic Neumann, HSBC's co-head of Asian economics research, said in a note.

Central banks in Asia have not been pressured to pursue interest rate hikes as aggressively as their European peers.

A stable yuan has provided some resilience to currencies in the region amid broad dollar strength and partly as a result, inflation - while elevated, has not veered out of control in most Asian economies.

However, Singapore's key price gauge climbed in December by its fastest pace in nearly eight years, exceeding economist forecasts, driven by a steep increase in air fares. Stocks in the city-state were down 0.4%, while the local dollar edged higher.

The prospect of higher US interest rates has left regional policymakers needing to strike a balance between protecting their economies' recovery while maintaining stability and stemming potential outflows that could weaken their current account surpluses.

Meanwhile, a Reuters Poll found the South Korean economy likely accelerated in the last quarter, buoyed by strong exports and investments, but an economic slowdown in China and surging Covid-19 cases pose a significant risk. - Reuters

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