Emerging Asia Currencies Slump After Hawkish Fed Surprise

(Bloomberg) -- Emerging Asia currencies slumped after the Federal Reserve surprised markets by speeding up its expected pace of policy tightening.

The South Korean won fell as much as 1.5% to pace declines in the region while Malaysia’s ringgit, the Philippine peso and Thai baht each fell at least 0.5%. The Bloomberg Dollar Spot Index climbed to a two-month high.

The losses could precede a longer bout of weakness for regional currencies which have fallen this month amid speculation the Fed may soon start winding down its bond-buying program. Rising U.S. yields are also likely to slow inflows into emerging Asian debt after demand swelled last week.

“The FOMC was surprisingly hawkish and the spike in U.S. Treasury yields could keep some Asian currencies on the back foot this morning,” said Fiona Lim, a senior currency strategist at Malayan Banking Berhad in Singapore. “Despite Powell’s advice to take the dot plot ‘with a big grain of salt’, concerns about inflation are still brought back to the fore.”

The offshore yuan bucked the declines in regional currencies, gaining 0.2% to 6.4283 per dollar.

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