What’s going on here?
Asian currencies held their ground as hopes for a US rate cut later this year lifted sentiment. The South Korean won led gains, climbing 0.6%, while the Indian rupee followed with a 0.5% rise. On the equities front, Indian shares hit record highs on optimism surrounding Prime Minister Narendra Modi’s potential third term.
What does this mean?
Expectations of a Federal Reserve rate cut are stabilizing Asian currencies and boosting
stock
markets. South Korean and Taiwanese stocks surged up to 2% in early trading, marking their best sessions in weeks. Indonesia’s benchmark index saw a notable 1.5% rise due to lower-than-expected
inflation
in May. While Shanghai stocks dipped 0.5%, China’s Caixin data revealed the fastest growth in manufacturing activity in two years, contrasting with the government’s earlier report of a slowdown.
Why should I care?
For markets: Riding the waves of rate expectations.
Investors have priced in a 53% chance of a Federal Reserve rate cut by September, anticipating a total easing of 37 basis points this year. This has buoyed Asian currencies and equities, with the Mexican peso also rising over 0.5% during early Asian hours. According to a currency strategist at OCBC, further Federal Reserve rate cuts could enhance sentiment towards Asian FX, while the USD remains under pressure.
The bigger picture: Global economic dance continues.
The potential shift in US monetary policy isn’t just influencing local markets; it’s driving a global narrative. China’s mixed manufacturing data – with Caixin showing growth while official surveys indicate a decline – highlights regional economic complexities. Meanwhile, ING analysts suggest that if Indonesian inflation trends higher, Bank Indonesia may have to tighten policies. As the world scrutinizes US economic signals, regional central banks are taking a cautious, wait-and-see approach.
