Asia-Pacific currencies such as the Korean won and the Japanese yen weakened against the U.S. dollar in early Asian trade Monday on fears of aggressive monetary-policy tightening by the Federal Reserve.
Fed Chairman Jerome Powell sounded hawkish at the Jackson Hole symposium last Friday and signaled that interest rates will be higher for longer, said MUFG Bank Ltd.’s analysts in a research report, noting Powell’s remark: “We will keep at it until we are confident the job is done.”
Powell’s comments suggest that even if the Fed stops raising interest rates after this December, the pause could last for six months or longer and the timing of rate cuts might be pushed out further, the analysts say. This prospect, in addition to a step-up in the reduction of the Fed’s balance sheet beginning next month, would lead to monetary conditions in financial markets staying tight, the analysts add.
Asia ex-Japan currencies are thus likely to be under pressure on Monday, given the U.S. dollar’s strength following Powell’s remarks, MUFG Bank’s analysts add.
The dollar
USDKRW,
+0.56%
climbed as much as 1.0% to 1,349.60 won, the highest intraday level since April 2009, according to FactSet. The greenback was last 0.9% higher at KRW1,348.11. Also, the dollar
USDJPY,
+0.81%
was up 0.6% at Y138.53 and gained 0.3% against the Singapore dollar
USDSGD,
+0.37%
to S$1.3988 while the Australian dollar
USDAUD,
+0.53%
slipped 0.3% to US$0.6863.
