Rising US Yields Weaken Asian Currencies Despite Softer Inflation

Asian currencies have begun October on a weaker footing, defying expectations of relief from softer US inflation. The US dollar has remained firm, while long-term Treasury yields continue to climb.

This divergence in interest rates has put pressure on emerging-market currencies, particularly those with high-risk profiles like Indonesia's rupiah and Thailand's baht. The rupiah slipped to 17,930 per US dollar, while the baht hit its weakest level since July 24 due to higher oil prices.

The situation is a result of investors demanding extra compensation for holding bonds in light of heavy US government borrowing and uncertainty about inflation remaining low. This has widened the interest-rate gap between the US and Asia, making it more expensive for global investors to hedge back into their home currencies.