Julia Wang, executive director and global market strategist at JPMorgan Private Bank, said that despite signals that the US Central Bank may soon begin easing monetary policy, Asian currencies could be on the “back foot" this year.
"Emerging market currencies often strengthen when the Fed lowers interest rates and the U.S. dollar weakens. But this may not happen this year, given expectations of a soft landing of the US economy, which should support the US dollar," Wang said, adding that the US presidential election and uncertainty about the Chinese economy may also contribute to the growth of the US dollar later this year.
Economists said that Asian currencies did rise last year when there were expectations that the Fed was going to cut interest rates. Meanwhile, some analysts have warned that Asian currencies such as the Chinese yuan and the Indian rupee could strengthen as a result of lower U.S. interest rates later this year, with the Korean won likely to be one of the main beneficiaries. According to forecasts by Monex experts, the Korean won may grow by 5%-10%, if the U.S. easing cycle is deep, but as little as 3% if the cycle is shallow.
According to the CME FedWatch Tool, markets see a 14.5% probability of a 25 basis point rate cut at the Fed meeting in May, and a 66.3% probability of a rate cut in June (compared to 71.7% yesterday).