Asian FX mixed on US rate expectations, debt ceiling deal

  • Forex
  • Monday, 29 May 2023

ASIAN currencies struggled for direction on Monday, amid increased bets of further rate hikes by the U.S. Federal Reserve even as a weekend deal to suspend the U.S. government's debt ceiling drew some safe haven bids away from the greenback.

Data on Friday showed that U.S. consumer spending rose more than expected in April and inflation picked up, adding to signs of a still-resilient economy.

Financial markets are now leaning towards a quarter-point hike from the Fed next month.

A deal to suspend the $31.4 trillion debt ceiling until 2025 will now have to pass through a narrowly-divided Congress, as the government looks to avert a potential default that would likely lead to recession in the U.S. and trouble for the global economy.

"There could still be some more twists and turns this week. But, with the progress made on a tentative deal and the rather convenient changing of the deadline to June 5th, risk-assets are continuing to price-out the potentiality of a U.S. default," said Tim Waterer, chief market analyst at KCM Trade.

Equities-sensitive currencies, including the Taiwanese dollar and South Korean won appreciated 0.3% and 0.1%, while most other currencies in the region lost ground.

The Philippine peso and Indonesian rupiah eased 0.3% and 0.1% respectively.

Elsewhere in the emerging markets, the Turkish lira hovered just a touch above its record low of 20.06, after President Tayyip Erdogan secured victory in the country's presidential election.

Meanwhile, the Bank of Thailand is expected to raise its policy interest rate by 25 basis points on Wednesday and then stand pat for the rest of this year, marking an end to a modest tightening cycle, a Reuters poll found. The Thai baht gained 0.1%.

"Weakness in THB could be halted by improved market sentiment, especially in the Thai stock market due to optimism over the US debt ceiling deal," said Poon Panichpibool, a markets strategist at Krung Thai Bank.

Asian stocks traded higher, tracking U.S. futures, with stocks in Taiwan and Thailand advancing 0.8% and 0.6% respectively.

"Markets are wary of the potential for tighter liquidity once the U.S. Treasury re-starts its T-bill issuance, which would drain liquidity and keep the dollar firm in the near-term," said Khoon Goh, head of Asia research at ANZ.

Bucking the trend, equities in Jakarta weakened. China released data for industrial firms' profits on Saturday that added to concerns that the world's second-biggest economy could be losing momentum.


** Thailand's finance minister said economy resilient, on path towards full recovery

** Debt deal could boost unloved corners of U.S. stock market, though risks loom

** Mexican economy grew for sixth consecutive quarter in Q1 - Reuters

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Asian , currencies , Federal Reserve , debt ceiling


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