(March 22): Asian equities and currencies fell on Friday on expectations of a gradual easing of interest rates after the US Federal Reserve’s rate outlook triggered a rally in the previous session, with currencies on track to end the week lower.
A sharp drop in China’s yuan and stocks also soured investor moodin the region.
The Philippine peso depreciated 0.1% against the dollar on Friday. It has slipped about 1.1% so far this week and was headed for its biggest weekly loss since Aug. 11, 2023.
Among equities, Manila stocks slipped 1.2% on the day and was the biggest laggard in the region, but were up 0.8% for the week so far. Equities in Singapore fell 0.1% on Friday.
The US Federal Reserve left its funds rate on hold between 5.25% and 5.5% this week and stuck with projections for three cuts by year’s end. But it said it will not start moving until it has more confidence that inflation is sustainably falling toward 2%.
Market expectations for US rate cuts increased but only very slightly. About 80 basis points (bps) of cuts are now priced in for this year, lower than about 160 bps at the start of the year.
The US dollar index was last up 0.2%.
The yuan weakened to a four-month low, breaching the psychologically important 7.2 per dollar level, on growing market expectations that Beijing will have to deliver further monetary easing to shore up economic growth.
The fall prompted the country’s major state-owned banks to sell dollars for yuan in an attempt to slow its decline, sources told Reuters.
Shanghai stocks also fell about 1%, spooked by the sudden depreciation of the yuan.
“The US exceptionalism narrative as well as guidance for slower Fed easing could continue to keep the USD supported for longer. That could probably be why the PBOC decided to allow market forces to drive the yuan a bit more,” said Fiona Lim, senior FX strategist at Maybank.
Elsewhere, the Taiwan dollar slipped 0.5% while local stocks were up 0.2%. The country’s central bank surprised markets on Thursday by raising its policy rate, a tightening at odds with the broader trend in the emerging Asian markets.
The Indonesian rupiah fell 0.7% while the Thai baht fell 0.3%
Markets now await inflation data from Malaysia and Singapore, as well as growth and unemployment data from the US, due next week.
