Asian currencies weaken, yields rise as rate-cut prospects diminish

Malaysia's ringgit and South Korean won led losses among Asian currencies on Monday while regional bond yields rose, as investors adjusted their expectations for the Federal Reserve's policy easing after strong U.S. jobs data last week.

The ringgit fell as much as 1% to a three-month low. The won and the Philippine peso retreated 0.6% and 0.7%, respectively.

Data on Friday showed U.S. job growth accelerated in January and wages increased by the most in nearly two years, indicating persistent strength in the labour market, and prompting investors to revise their rate-cut expectations.

"The Fed historically tends to make rate cut decisions based on labour market indicators. The strong NFP (non-farm payrolls) should therefore give the Fed added comfort in staying their hand on cutting rates," Maybank analysts wrote.

Traders are now pricing in just a 20% chance that the Fed could begin easing rates in March, according to the CME FedWatch tool.

The strong payrolls report and Fed Chair Powell's comments that the central bank can be "prudent" in deciding when to cut its benchmark interest rate caused the dollar to bounce and pushed U.S. Treasury yields higher.

Two-year yields jumped eight basis points to 4.451% in early Asia trade, while 10-year yields rose four basis points to 4.07%.

Yields rise when bond prices fall. Regional bond yields took the cue and were higher on Monday, with yields on South Korea's 10-year Treasury bond rising 8.8 basis points and Singapore's 10-year benchmark yield up 7.9 basis points.

Meanwhile, data showed that Indonesia's annual economic growth eased, but remained solid at 5.05% last year, close to the government's latest outlook of 5% and slightly below the 5.3% recorded in 2022.

The rupiah (IDR) was last down 0.3%, and has fallen nearly 2% so far this year.

Bank Indonesia (BI) governor said last week that the central bank has room to lower interest rates this year to lift economic growth, but is waiting for the rupiah to strengthen against the dollar.

"Recent IDR stabilisation reduces the need for another BI rate hike in the near term. We expect four 25 bp rate cuts once the Fed starts easing," Barclays analysts wrote.

In Thailand, data showed annual headline consumer inflation rate fell to its lowest in 35 months in January.

The baht followed regional peers to decline 0.6%. The Bank of Thailand (BoT) is set to keep its key interest rate unchanged this week, and leave it there until early 2025, according to a Reuters poll.

The decision will be closely watched given the recent political pressures on the central bank to cut rates. Barclays analysts expect the BoT to cut rates in June.

Reserve Bank of India's rate decision, and inflation data from the Philippines, Taiwan and China will also be on investors' radar this week.

Concerns over China's economy and markets will continue to remain in limelight, as the country's securities regulator pledged to prevent abnormal market fluctuations after the stock market plunged to five-year lows.


** Indonesia presidential hopefuls strike conciliatory note ahead of election

** China's Jan services activity expands at slower pace - Caixin PMI

** South Korea watchdog warns financial firms on risk management - Reuters

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