Most Asian currencies edged higher on Thursday as traders continued to anticipate a December interest rate cut by the U.S. Federal Reserve. Meanwhile, the South Korean won extended its decline amid escalating political uncertainty in the country.
At a New York Times event, Fed Chair Jerome Powell highlighted the resilience of the U.S. economy, reinforcing expectations for a December rate cut. However, he also signaled a more measured approach to monetary easing in the future.
The dollar softened slightly on prospects of lower rates in the short term. The U.S. Dollar Index dipped 0.1%, and Dollar Index Futures also posted a minor decline.
Regional caution persists amid South Korea’s political crisis
Investors in Asia remained cautious, with heightened political turmoil in South Korea casting a shadow over regional sentiment. Potential escalations could undermine investor confidence across the continent.
South Korean won struggles despite rescue measures
The South Korean won weakened further on Thursday, with the USD/KRW pair climbing 0.5%.
This follows the won hitting a two-year low on Wednesday before recovering to close flat, as President Yoon Suk-Yeol rescinded martial law in response to mounting public and political backlash.
To stabilize markets, South Korea’s Finance Ministry unveiled a 40 trillion won ($28.35 billion) market stabilization fund. Additionally, the Bank of Korea announced plans to purchase bonds and expand repo operations, with contingency measures ready if needed.
Economic data showed that South Korea’s GDP grew just 0.1% in the third quarter, matching earlier estimates and signaling continued economic sluggishness.
The won remains one of the region’s poorest-performing currencies, having declined over 9% this year. Persistent downward pressure from a stronger dollar, coupled with fears of a renewed U.S.-China trade war, has further dimmed its outlook. In this environment, several other currencies also experienced declines. The Chinese yuan’s onshore USD/CNY pair rose 0.2%, remaining near four-month highs.
The Indian rupee’s USD/INR ticked up slightly to 84.723 rupees. Analysts predict further weakening of the rupee, with forecasts suggesting it will surpass the 85 per U.S. dollar mark within the next six months, despite ongoing intervention efforts by the Reserve Bank of India to curb its depreciation, according to a Reuters poll.
The Reserve Bank of India is expected to announce its interest rate decision on Friday.
Malaysian ringgit, Japanese yen strengthen on U.S. rate cut expectations
The Malaysian ringgit’s USD/MYR pair fell 0.5%, while the Philippine peso’s USD/PHP pair edged down 0.2%. The Singapore dollar’s USD/SGD pair also saw a slight 0.1% decline.
The Japanese yen’s USD/JPY pair dropped 0.2%, while the USD/THB pair saw a small decline. The Australian dollar’s AUD/USD pair rose 0.1%.
Investors found some reassurance in Powell’s comments, though they remained cautious about the long-term outlook for interest rates, particularly under a potential Donald Trump presidency. Markets are currently pricing in an approximately 78% chance of a 0.25% rate cut by the Federal Reserve in December, according to CME FedWatch.
