According to Bloomberg, analysts indicated that the decision of the United States Federal Reserve to reduce interest rates by only 0.25 percentage points would help to support the dollar and put pressure on Asian currencies.
Rich country securities indicate that the strengthening of the United States dollar following a statement by the Federal Reserve Bureau is widespread and that Asian currencies are difficult to escape. According to the Bank, although long-standing pessimism towards the United States dollar may limit its scope for rise, the United States dollar may continue to rise to Yen 147.
The following is an analyst’s review.
Brendan McKenn, New York Emerging Market strategist
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The strengthening of the United States dollar after the FOMC meeting was comprehensive, and it was hard to imagine that the Asian currency would survive the wave of dollar increases; unless the Federal Reserve issued a new policy signal, which was unlikely. The statement made by the Federal Reserve Bureau, particularly Powell, at the press conference was not clear about further reductions. I personally believe that the so-called `risk management-type interest rate reduction’ actually has some hawks, and that the Asian currency might react.
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Some high-Beta currencies may be the most sensitive. From this point of view, the response of the Korean Won and the Indonesian guilders may be strongest, and the response of the Philippine peso may be weaker. In view of the latest policy mix in Indonesia, the guilder is probably the most sensitive.
Takeru Yamamoto, Trader in New York, Sani Suai Sumitomo Trust Bank
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The dollar was sold immediately after the announcement, as the Federal Reserve Bureau had been expecting a further two interest cuts this year; but then the dollar was bought back, because the market expected a reduction only once next year, and the statement made by Federal Reserve Board Chairman Powell at the press conference was considered to be slightly biased against the Eagles.
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While the United States dollar may rise to the level of Yen 147 in the current trend, expectations of future interest-rate reductions continue to suppress market sentiment and pessimism towards the dollar remains strong, limiting its scope for rise.
Dominican securities strategist in New York, including Jayati Bharadwaj
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We still look at the dollar and believe that any technical rebound is a good opportunity to sell. Economic growth in the rest of the world has been robust, and overall performance appears to be better than in the United States. In combination with the Federal Reserve’s easing policy, this may create a positive risk preference environment that drives the rise of risky assets and interest rate-sensitive currencies that are currently undervalued — for example, yen and Australian dollars.
