(Bloomberg) — A rebound in the dollar sent a sharp decline across global currencies on Tuesday, sending many currencies through closely watched levels and forcing some officials to intervene to stem losses. .
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A major intervention by China (reducing the daily benchmark value of the renminbi) only served to increase the pressure further, with the Indonesian rupiah, Indian rupee and South Korean won being the hardest hit. But the impact on the dollar was broader, with the global benchmark for emerging market currencies falling to its lowest level this year. Asian stocks also extended their decline, with the region’s benchmark emerging market stocks down about 2%.
The U.S. currency’s gains widened into Wednesday on geopolitical tensions and better-than-expected U.S. retail sales data that suggested the Federal Reserve would hold off on cutting interest rates. Iran’s attack on Israel over the weekend added to the haven-buying momentum as the conflict between the two countries entered a dangerous new phase.
China weakens fixed currency as dollar rises, loosens control over renminbi
“Most Asian currencies will have to bow to a stronger dollar,” said Mitul Koteka, head of Asian foreign exchange and emerging markets macro strategy at Barclays. “Asian currency movements are generally trending towards dollar strength, driven by rising US yields and increased market risk aversion. Today’s weaker yen and Chinese renminbi have added further pressure on currencies. There is.”
A stronger dollar forced Bank Indonesia to support the rupiah after the currency fell by more than 16,000 rupiah to the dollar for the first time in four years as land markets reopened after more than a week-long holiday. lost. Malaysia’s central bank on Monday signaled it was ready to support the ringgit, which is hovering near a 26-year low.
Christopher Wong, currency strategist at Oversea Chinese Banking Corporation in Singapore, said: “An unfavorable combination of geopolitics, long-term US interest rates, and renminbi and yen volatility have dampened sentiment in Asian ex-Japan currencies. It may continue to be damaged.” .
The Indian rupee fell to a record low and the South Korean won fell to 1,400 yen to the dollar, a closely watched psychological level for the first time since late 2022. The Malaysian ringgit is near its lowest since 1998. The Taiwanese dollar has fallen to its lowest value since 2016. Meanwhile, the Philippine peso fell to 57 pesos to the dollar for the first time since November 2022.
The MSCI Emerging Currency Index has fallen 1.8% since the beginning of the year. Among Asian stocks, South Korea and Taiwan led the decline, each dropping about 2.5%.
The Fed’s easing of bets on interest rate cuts suggests the fight against a strong dollar isn’t over anytime soon. This has put pressure on officials to act, leading to increased currency intervention across emerging markets and particularly in Asia.
Meanwhile, China’s managed currency is seen as the backbone of its peers in the region, so any depreciation could have a devastating impact. Most threatened are the currencies of China’s Asian neighbors, such as South Korea and Thailand, with which it is its biggest trading partner, but a sudden devaluation of the yuan could have broader implications.
–With assistance from Matthew Burgess, Hooyeon Kim, and Shikhar Balwani.
(Updated with U.S. retail sales data in third paragraph and Philippine peso in seventh paragraph.)
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