Asian currencies have hit their lowest levels in more than 19 months due to the strengthening of the U.S. dollar, fueled by expectations of continued high interest rates in the United States. On Thursday, the Bloomberg Asia Dollar Index dropped by 0.1%, reaching its lowest point since November 2022. Significant declines in the Philippine peso, Indian rupee, and South Korean won have been observed, with the won coming close to 1,400 per dollar. Nigel Green, the CEO of Devere Group, attributes this depreciation to the Federal Reserve’s plans to maintain higher interest rates, in contrast to other central banks that have either paused or cut rates.
The appeal of dollar-denominated assets increases when U.S. interest rates are elevated, resulting in capital outflows from emerging markets, higher costs for debt denominated in dollars, and more expensive exports. The continuous depreciation of the Japanese yen further exacerbates the situation for other Asian currencies. This sustained weakness poses risks such as higher import prices, inflation, reduced consumer spending, and overall financial instability. Green concludes that the outlook for Asian currencies remains pessimistic for the remainder of 2024.
