Asian currencies rise as Fed credibility concerns knock US dollar lower

New Straits Times

6 hours ago

SINGAPORE/HONG KONG: Asian currencies firmed on Thursday after the US dollar slipped on concerns over the future independence of the US Federal Reserve, while investors shifted their focus from geopolitics to regional indicators and trade headwinds.
The US dollar dropped as worries over the Federal Reserve's independence weighed on confidence in US monetary policy, after a media report said Trump has considered announcing Fed Chief Jerome Powell's replacement by September or October.
The Thai baht inched 0.3 per cent higher, a day after the Bank of Thailand (BoT) kept its interest rates unchanged and signalled more easing amid tariff risks and political tensions.
"The BoT continues to sound dovish, keeping hopes of further rate cuts alive and providing support to the country's bonds. The latter, in line with a softening dollar, should back the potential for THB strengthening throughout this year," said Alan Lau, FX strategist at Maybank.
Thailand, already struggling with tepid consumption, surging household debt and sluggish tourism, now also faces increased political risk and the threat of hefty tariffs on its exports to the US if it cannot negotiate an agreement before a July moratorium.
Most central banks in the region have taken a wait-and-see approach during their recent meetings, quoting the fundamentals of their respective economies and taking stock of uncertainty in global trade and geopolitics.
Taiwan's central bank recently held its interest rates steady, citing solid growth in its tech-driven economy and muted inflation, while its Indonesian counterpart said it would intervene when required. The Taiwanese dollar rose 0.7 per cent, while the Indonesian rupiah added 0.3 per cent.
Meanwhile, the Philippines central bank left the door open for at least one more cut this year following a recent 25-basis-point rate cut.
Most central banks tend to have the same thoughts on how to navigate through a high uncertainty environment, which is to stay in a wait and see mode and be nimble to adjust monetary policy accordingly if needed, said Poon Panichpibool, a market strategist at Krung Thai Bank.
Markets are now shifting focus from geopolitical risks in the Middle East to trade tensions as the July 9 deadline for the 90-day pause on reciprocal tariffs draws closer. "So what we should expect to see going forward is rising market volatility," said Panichpibool.
In Hong Kong, the local dollar was largely unchanged after the financial hub's de facto central bank sold US$1.2 billion against the HK dollar. The intervention came after the Hong Kong dollar hit the weak side of the band for the first time in two years last Friday.
Stocks were down 0.6 per cent. South Korean shares dropped over 2 per cent as investors booked profits after a post-election rally, while Thai stocks advanced 0.7 per cent.