Asian Currencies Weaken as Hawkish Fed Bets Rise

Emerging Asian currencies and equities weakened on Monday as investors grew more confident in a US Federal Reserve rate hike next month. Higher oil prices added to pressure on the region's oil-importing economies.

The MSCI global EM currency index slipped marginally, snapping an eight-session rally, as the US dollar hovered near a two-week high due to hawkish remarks by Fed Chair Kevin Warsh.

Warsh stated that the central bank still had work to do to bring inflation under control, prompting traders to raise the probability of a September rate increase to about 60%, according to CME's Fedwatch tool. The US dollar index reached a two-week high on Friday and continued to hover around that level at noon in Singapore on Monday.

Asian currencies are now facing more pressure if short-term US yields continue rising, said MUFG senior currency analyst Lloyd Chan. He added that the baht and rupiah are most vulnerable due to higher Treasury yields potentially curbing inflows and pressuring the rupiah.