Asian stocks, currencies rise on U.S. rate cut wagers

By Roshan Thomas

July 4 (Reuters) –Asian currencies gained ground against a weaker dollar on Thursday, and equities climbed with those in Taiwan touching a record high, as data suggested the U.S. economy was cooling, fuelling hopes for a September rate cut by the Federal Reserve.

Taipei stocks .TWII rose as much as 1.6% to touch a record high, boosted by chip stocks following a strong overnight performance on Wall Street. Equities in Singapore .STI inched up 0.6% to remain at their highest level since April 2022.

Manila shares .PSI rose 0.9% to their highest level in a month, while stocks in Jakarta .JKSE gained 0.7% to record their highest level since May-end.

Regional currencies also edged higher, with the South Korean won KRW=KFTC, the Taiwanese dollar TWD=TP and the Malaysian ringgit MYR= appreciating between 0.2% and 0.3%.

The dollar index =USD was on the back foot on Thursday after the release of softer-than-expected economic data on Wednesday, including a weak services report and ADP employment figures, indicated a slowdown in the U.S. economy.

Meanwhile, minutes of the Fed’s June 11-12 meeting showed that officials noted a slowing U.S. economy and reduced price pressures, advocating caution before deciding on interest rate cuts.

As a result, investors are betting the Fed’s easing cycle could commence in September. Markets are now pricing in about a 67% chance of the Fed cutting interest rates at its September meeting compared to about 60% a week ago, according to the CME FedWatch Tool.

Separately, a Reuters poll showed that emerging market currencies are unlikely to recover this year’s losses against a strong dollar in the next six months, given China’s economic challenges and the Fed’s reduced rate cut expectations.

“The dollar is still strong and may remain strong for rest of the year due to U.S. election risks and Fed keeping policy rates high for longer (we expect first rate cut from Fed in December 2024). This will keep central banks in Asia to remain on hold bias,” said Chandresh Jain, Rates and FX strategist, Asia, Global Markets, BNP Paribas.

“We expect Bank of Korea could be the first central bank in Asia to cut policy rates this year. Inflation has come down faster then BoK’s own projection,” Jain added.

Regional investors are now awaiting inflation data from Thailand, the Philippines and Taiwan, and U.S. nonfarm payrolls data, all due to be released on Friday.

HIGHLIGHTS:

** South Korea Vice Finance Minister Kim Byeong-hwan named new financial regulator chief

** Sri Lanka reaches provisional deal on $12.5 bln bond rework

** Philippines president orders de-escalation in South China Sea, military chief says

Reporting by Roshan Thomas in Bengaluru; Editing by Sonali Paul