Emerging Asian currencies edged lower on Friday as the US dollar gained strength following signals from the Federal Reserve that it will pursue a more measured approach to monetary easing. The shift in sentiment prompted investors to reassess their positions across both currency and equity markets in the region, pushing most benchmarks into negative territory for the day.
The impact was immediately visible in stock markets across developing Asia. The MSCI index of emerging Asia equities fell 0.6 percent, slipping from recent highs but still holding just below a four-year peak. The mood in Singapore reflected broader market caution, with the FTSE Straits Times Index declining for a sixth consecutive session after hitting a record on September 12. Similarly, equities in Taiwan and South Korea eased from record levels reached only a day earlier, signaling investor hesitation amid changing monetary expectations.
Despite the day’s pullback, analysts noted that many equity markets in Asia were still on track to end the week in positive territory. The overall momentum had been fueled by a rally leading up to the Fed’s policy decision, which many investors had anticipated would reaffirm a looser stance. The MSCI EM Asia index was still up about 1 percent over the week, while markets in Indonesia and the Philippines were poised to post gains of around 2 percent and 3 percent respectively, underscoring resilience despite the latest correction.
For many in the region, the Federal Reserve’s recent tone has provided breathing space. A dovish Fed outlook has historically given Asian central banks greater room to pursue accommodative policies without triggering excessive pressure on their currencies. This flexibility supports growth prospects across emerging markets while sustaining investor appetite for risk, even as near-term volatility continues to shape daily performance.
Nomura analysts led by equity strategist Chetan Seth highlighted that the Fed’s signaling of a rate-cutting cycle should underpin risk sentiment for now, as long as incoming US economic data does not significantly weaken. They added that while valuations across larger Asian markets have climbed considerably, they are not yet approaching unsustainable extremes, leaving room for cautious optimism.
In currency markets, however, pressure was more evident. Emerging market currencies broadly weakened against the dollar, with the MSCI index of global EM units sliding for a second straight day. This marked a reversal from earlier in the week, when the same index touched a ten-week high on optimism surrounding the Fed’s policy stance. The renewed strength of the dollar has reminded traders of the delicate balance Asian currencies must navigate as global interest rate dynamics evolve.
The latest developments underscore the complex interplay between US monetary policy, investor risk appetite, and Asian market resilience. While equity benchmarks in the region continue to show signs of strength, the performance of local currencies highlights the cautious undertone that persists. For now, market participants are closely watching US data releases and central bank commentary, both of which could determine whether the recent dollar rebound is temporary or marks the start of a new trend.
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