Asian currencies slide as hot US inflation lifts Fed rate-hike bets
Emerging Asian currencies weakened on Thursday after hotter-than-expected US inflation data reinforced expectations of further Federal Reserve rate increases, pressuring regional equities and currencies alike. The South Korean won fell more than 1% to a two-week low of 1,352.84 per dollar, while the Taiwan dollar dropped sharply to 32.325, its weakest since early August. A steep selloff in chip stocks in both markets added to the pressure.
South Korea's KOSPI tumbled more than 8%, triggering a circuit breaker for the first time in two and a half months. Samsung Electronics and SK Hynix, the world's leading memory chipmakers, fell nearly 10% and 12% respectively, their worst day since late July. Taiwan stocks fell 3.8% to a near one-month low, with TSMC shedding nearly 3% to its lowest since late September.
Inki Cho, senior financial market strategist at online trading platform Exness, attributed the won's pullback to technical consolidation rather than a trend reversal, citing position-squaring and profit-taking after the currency's run to a two-year high. He said the Taiwan dollar's slide reflected a different dynamic, with foreign investors extending their selling streak in Taiwanese stocks as yield spreads widened while the Fed tightened and Taiwan's central bank stayed on hold.
In Southeast Asia, the Philippine peso hit a record low of 63.09 per dollar, pressured by high oil prices, El Niño risks to food prices, elevated inflation, weak growth and a deteriorating current account position. Goldman Sachs analysts said on Thursday they expected further peso weakness and reiterated their call for two additional quarter-point rate hikes by the Bangko Sentral ng Pilipinas, with the first expected next week. They said a large current account deficit and weaker portfolio and foreign direct investment inflows left the currency vulnerable, and that they expected the central bank to be cautious about drawing down reserves further to support the peso.
US consumer prices rose faster than expected last month, data showed late on Wednesday, raising expectations for additional Fed rate hikes, possibly as soon as this month. Fed tightening tends to strengthen the dollar, pressuring emerging market currencies, encouraging capital outflows from their bond and stock markets and raising borrowing costs on dollar-denominated debt. The dollar index scaled a fresh 18-month high after the inflation data but gave up most of those gains following cautious remarks from Fed officials. The Indonesian rupiah slipped to 17,955 a dollar while stocks fell more than 2%, Singapore stocks declined around 1% to a three-month low, and the Indian rupee ticked higher to 94.885 at the open, with traders telling Reuters the central bank is likely to keep selling dollars via state-run banks to support the currency.
