Asian currencies subdued as equities gain ahead of Fed decision

Asian markets: Asian emerging market currencies remained subdued on Monday following the release of US inflation data, which reduced the likelihood of imminent interest rate cuts. Investors are now closely watching the Federal Reserve's policy meeting later in the week for further guidance.

The South Korean Won depreciated 0.4 per cent against the greenback, while the Indonesian Rupiah fell 0.2 per cent.

Meanwhile, most equities in the region experienced gains, with the markets in Manila and Taipei leading the way, both rising by 1.6 per cent.

The upcoming two-day monetary policy meeting of the Federal Reserve, commencing on Tuesday, is expected to be the focal point of the week. Market consensus suggests that the central bank will maintain its current interest rates.

Expectations for delayed rate cuts have been fueled by persistent US inflation and statements from Fed officials, particularly Chair Jerome Powell, stressing the importance of data in monetary policy decisions.

Market indicators now project the first Fed rate cut to occur in September, a departure from previous expectations of a June cut, with an anticipated easing of around 30 basis points throughout the year.

Guidance on the central bank's rate outlook will be closely monitored by investors for further insights into future monetary policy decisions.

Fiona Lim, senior FX strategist at Maybank, noted, "While we cannot rule out the tail risk of the Fed putting a rate hike back on the table, should the Fed continue to sound balanced in terms of rate guidance, the greenback may even soften along with US rates."

In the Asian region, the prospect of sustained higher US interest rates, coupled with recent weakness in regional currencies, may delay rate cuts until next year or potentially even lead to rate hikes this year, according to Lloyd Chan, FX Strategist at MUFG.

The Thai Baht slipped 0.2 per cent, while Bangkok stocks <.SETI> gained 0.2 per cent. Similarly, the Malaysian Ringgit edged 0.1 per cent lower, while equities in Kuala Lumpur gained 0.2 per cent.

(With Reuters inputs.)