Asian Currencies Subdued As Investors Await Fed Rate Decision

Most Asian currencies were tepid on Wednesday (March 22), with the Philippine peso falling most, as investors await the conclusion of the Federal Reserve’s policy meeting for
clarity on the future US rate path.

The Philippine peso was on track to snap its five-day gaining streak, falling 0.4%, while the Thai baht remained flat. 

Traders globally are now focussed on whether the US central bank will keep to its hawkish path to fight soaring inflation or pause interest rate hikes given recent trouble among banks which has included bankruptcy and last-minute rescues.

Markets are pricing in about a 14% chance of the Fed not increasing rates, with a roughly 86% chance of a 25 basis point hike, showed the CME FedWatch tool. Just a month earlier, the market was pricing in a 24% chance of a 50 basis point hike, Reuters reported.

The Fed is likely to continue with calibrated tightening to address inflation risks simply because it makes a distinction between bank-specific stress and systemic risks of contagion, said Vishnu Varathan, Head, Economics & Strategy at Mizuho Bank.

“Markets should not bank on a banking crisis to derail a well-telegraphed 25bp hike, validated by inflation hot spots,” Varathan added.

Currencies elsewhere in the region showed limited moves with the Singapore dollar and Malaysian ringgit steady.

The South Korean won gained 0.3%.

Markets in Indonesia were closed for a public holiday.

In Sri Lanka, the rupee was last up 2.6%.

The cash strapped country, which is facing its worst financial crisis in seven decades, has received the first tranche of an IMF bailout programme, President Ranil Wickremesinghe told parliament on Wednesday.

The island nation was scheduled to receive a US$330 million (RM1.4 billion) tranche, the first part of a nearly US$3 billion bailout approved by the International Monetary Fund on Monday.

Meanwhile, Asian equities staged a cautious bounce, following sharp overnight gains on the Wall Street, as fears over liquidity in the banking sector abated.

Shares in Singapore hit their highest in nearly two weeks, after gaining up to 1.5%. Stocks in Manila also hit their highest since March 13, rising 0.7%.

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