Dollar Rally Lifts Odds for September Rate Hike
Asian currencies and stocks have taken a hit as traders bet on a possible Federal Reserve rate hike next month. The US dollar index has risen to near two-week highs, making dollar assets more attractive to investors.
This shift in tone started after Kevin Warsh, a former Fed official, said inflation may still need tighter policy. As a result, CME's FedWatch gauge now shows around 60% odds of a September hike.
The higher expected US short-term interest rates have made dollar assets more appealing to investors, which can draw money away from riskier markets in emerging Asia. This has put pressure on currencies like the Indonesian rupiah and Thai baht, which fell to about 17,755 per dollar and 33.235, respectively.
The recent jump in oil prices after US forces struck Iranian missile launchers has added another layer of stress for net oil importers. With pricier energy worsening their trade balances and keeping inflation sticky, their currencies have become more sensitive to global investor caution.