Asian currencies subdued following US CPI data, anticipating weekly losses

Emerging markets: Asian emerging market currencies remained tentative on Friday in the wake of higher-than-expected inflation in the United States. Despite concerns, March interest rate cut bets kept the greenback steady, with most currencies set to conclude the week with losses.

The Philippine Peso edged 0.3 per cent higher on Friday but recorded a 0.5 per cent decline for the week, marking its most substantial weekly loss since late August last year. The Indonesian rupiah slipped marginally and is on course for a second consecutive week of losses.

In the equities market, Manila led gains in the region, surging by 0.9 per cent, while Mumbai stocks jumped as much as 0.9 per cent, reaching a record high.

Data from the US overnight indicated that consumer prices rose more than expected in December. While this suggested the Fed might need to maintain high interest rates for a longer period, the market continued to anticipate a rate cut soon, according to the CME FedWatch tool.

The tool revealed a 71.4 per cent chance of a rate cut in March, compared to a nearly 66 per cent chance at the beginning of the week. Some analysts, including Robert Carnell, Head of Research and Chief Economist Asia-Pacific at ING, expressed skepticism about the market pricing, stating, "Without some sort of crisis somewhere, I can't see how the Fed can justify a cut by March."

Bank of America analysts, however, maintained their view of a quarter-point rate cut in March, citing a softcore personal consumption expenditure index that increases the likelihood of rate reduction.

In global developments, the US and Britain launched strikes against Houthi military targets in Yemen, leading to a surge in oil prices and potentially dampening investor sentiment.

In China, consumer prices extended their decline for a third consecutive month in December, with factory-gate prices also falling. While reflecting persistent deflationary forces, analysts at ING downplayed the data, stating that China's CPI came in negative due to an "unhelpful" comparison with food prices last year.

In Southeast Asia, the Thai Baht slipped about 1 per cent for the week, on track for a second consecutive week of losses. Bangkok stocks also fell about 1 per cent, ending a five-week winning streak.

Looking ahead, traders will closely monitor Bank Indonesia's key interest rate decision, with expectations leaning toward the central bank keeping its policy rate unchanged, according to a Reuters poll.

(With Reuters inputs.)