Fed's Hawkish Turn Slams Asia's Dollar-Linked Economies

The Federal Reserve's recent shift towards tighter monetary policy is having a profound impact on Asia's dollar-linked economies. Policymakers in Seoul, Jakarta, and other major cities are now facing the consequences of a resurgent dollar and weakening local currencies.

For much of early 2026, these countries had been counting on US rate cuts to boost their exports, but the Fed's decision has sent shockwaves through the region. The surge in 30-year Treasury yields has jolted Asian officials, recalling memories of the 1997-98 Asian financial crisis.

The Indonesian rupiah has dropped to its weakest level since that crisis, while the South Korean won and Thai baht have also taken a hit. Oxford Economics' Artie Lam warns that Jakarta is among the economies most vulnerable to market pressure to tighten fiscal policy as currency weakness erodes budget space.