Fed cut expectations drove the USD weaker across the board in overnight markets. Asian currencies performed best, led by the THB, KRW, MYR, and PHP, which appreciated more than 1% against the USD. Single-day gains in the IDR and TWD were also substantial at 0.9% and 0.8%, respectively. We view the Asian currency rebound as a recovery of the losses from the Fed’s “high for longer” rates stance in the first half of this year. The MYR has become the strongest currency this year, appreciating by 5.1% ytd, a far cry from the 4% ytd loss in April. The SGD is the other currency that managed to appreciate for the year, by 1.3% ytd, sharply reversing the 3% ytd loss by the end of April. While the THB is flat for the year, it did wipe out the 7-8% ytd loss in the first four months. The outlook for Asian currencies is supported by the recovery in the region’s largest currencies (JPY and CNY), many Asian economies reporting stronger-than-expected growth lately amid US growth worries, and no expectations for their central banks to match the Fed cut cycle over the next two years. There is scope for the KRW, PHP, IDR to play catch up in recovering this year’s losses.
In the Developed Markets, gains in the EUR, CHF, and GBP were decent at 0.5%, 0.4%, and 0.4%, respectively. However, they underperformed their Asian peers because markets expected the European Central Bank, the Swiss National Bank, and the Bank of England to lower rates with the Fed in September. As for the commodity-led currencies, NZD and AUD rallied by 1% and 0.9%, respectively, encouraged by the currency rebound in Asia, their largest export market. However, the CAD appreciated less by 0.3% because of its geographical proximity to the US and rate cut outlook. All said, the USD remains soft from the Fed prioritizing jobs in lowering rates and a 200 bps rate cut cycle over 2025-2026 it projected in June. All eyes remain on the Kansas City Fed’s Jackson Hole Symposium on August 22-24.
Quote of the day
”Recovery is about progress, not perfection.”
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20 August in history
The dial telephone was patented in 1896.
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