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Asian FX as stalled US debt talks hit risk appetite

May 24, 2023 at 5:04 pm | Economic Affairs

May. 24 (Agencies) — Asian currencies started under pressure on Wednesday as US debt ceiling talks showed no signs of progress ahead of the fast-approaching deadline, unnerving market participants and dampening their appetite for risk.
Equities in Asia too were subdued, with stocks in Singapore and South Korea falling 0.3% and 0.2%, respectively, while shares in Malaysia and Indonesia were little changed.
In the US, representatives of President Joe Biden and congressional Republicans ended another round of debt ceiling talks on Tuesday with no signs of progress as the two parties remain deeply divided about how to rein in the federal deficit.
The Malaysian ringgit fell 0.3%, hitting its lowest level since November, while the South Korean won was on track to snap a five-day rally, shedding 0.3%.
Malaysia is poised to release its April Consumer Price Index (CPI) reading later in the week. Analysts at DBS expect inflation to reflect a further moderation of overall price pressures, forecasting the “headline rate at 3.2% YoY”.
“After a very impressive post-pandemic economic growth recovery in 2022, we expect a softer Malaysia growth outlook in 2023, as the externally oriented economy contends with a challenging global economic environment,” they said in a note.
The Bank of Korea, which will meet on Thursday, is expected to keep interest rates unchanged for a third time to assess the impact of previous hikes on inflation and economic growth, according to a Reuters poll.
Meanwhile, Vietnam’s central bank, State Bank of Vietnam (SBV), said on Tuesday that it will cut its refinance rate by another 50 basis points to 5.0% to prop up the slowing economy.
The central bank added that inflation in Vietnam is under control with banks’ liquidity being abundant, thus, aiding its move to cut the rates.
“The scope for further rate reduction may be limited given considerations for domestic inflation as well as potential implications for the VND exchange rate, said Suan Teck Kin, head of research at UOB Group.
UOB further expected the refinancing rate to stay at 5.0% at least through the third quarter of 2023, if not longer. The Vietnam dong fell 0.1%, touching its lowest point in about five weeks.
Besides the US debt talks, investors also awaited minutes from the Federal Reserve’s May 2-3 meeting to assess the central bank’s next likely move on interest rates.
The Commerce Department’s April personal consumption expenditure (PCE) index reading, the Fed’s preferred inflation gauge, is due on Friday.

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