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Asian currencies fall, yuan hits 8-year low after Fed’s signal

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by December 15, 2016 General

Emerging Asian currencies slid against the dollar today after the US Federal Reserve raised interest rates. — Reuters picEmerging Asian currencies slid against the dollar today after the US Federal Reserve raised interest rates. — Reuters picSINGAPORE, Dec 15 ― Emerging Asian currencies slid against the dollar today, with the Chinese yuan hitting an eight-year low after the US Federal Reserve raised interest rates and signalled a faster pace of rate increases in 2017.

The Chinese yuan opened at its weakest level against the dollar in more than eight years.

The Singapore dollar fell to 1.4436 per the US dollar earlier today, its weakest since January, while the South Korean won fell 0.9 per cent.

The Malaysian ringgit, Indonesian rupiah and Philippine peso also retreated.

The outcome of the Fed’s policy meeting reinforces the outlook for further dollar strength, said Heng Koon How, senior FX investment strategist for Credit Suisse in Singapore.

“We continue to stay negative on euro, negative on Chinese yuan, and mostly negative on Asian currencies,” Heng said.

The Fed coming across as being slightly more hawkish than before and rises in US Treasury yields are key negatives for the yuan and Asian currencies, he added.   

The Fed raised interest rates by 25 basis points to a range of between 0.50 per cent and 0.75 per cent yesterday as widely expected.

The real mover came from the Fed signalling three hikes in 2017, up from around two flagged at its September policy meeting.

After the Fed’s decision, the US benchmark 10-year Treasury yield touched its highest level in more than two years, while the two-year Treasury yield scaled a seven-year peak.

Such rises in US Treasury yields can erode the attraction of higher-yielding emerging market assets and lead to capital outflows from emerging markets. ― Reuters

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