December 20, 2018 / 5:50 AM / 5 months ago

Asian currencies stumble as Fed signals 'some' hikes

(Reuters) - Asian currencies weakened against a stable dollar on Thursday, as the Federal Reserve forecast some further gradual rate hikes and projected a less dovish policy stance than anticipated.

A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad, September 20, 2018. REUTERS/Amit Dave/Files

The Korean won softened 0.6 percent against the greenback and led the region’s declines.

The Fed hiked key rates by 25 basis points and trimmed its median forecast from three to two hikes next year, but left open the possibility that continued strong data could force it to raise rates to the point where they start to brake the economy’s momentum.

Fed Chairman Jerome Powell also said that the central bank would continue to trim its balance sheet and that the policy does not need to be accommodative.

OCBC Bank said in a note “the FOMC statement and refreshed economic forecasts were nowhere as dovish as what initial market players were hoping for.”

The United States’ gross domestic product is forecast to grow 2.3 percent next year and 2.0 percent in 2020, slightly weaker than the Fed previously anticipated.

The Indonesian rupiah stumbled 0.3 percent ahead of the central bank’s policy decision later in the day.

Bank Indonesia is expected to keep interest rates on hold at its final policy meeting of 2018, after it raised it last month for the sixth time this year.

Meanwhile, the Taiwan dollar was also slightly weaker against the greenback. Its central bank is expected to leave its key rate steady for a 10th straight quarter at a policy meeting later in the day amid concerns of slowing exports due to the China-U.S. trade dispute.

Investors are wary about a no-change decision on rates, after the Fed’s hike, due to rate differentials and the ensuing difference in regional and U.S. yields.

Also declining against the dollar was the Philippine peso, the Indian rupee and the Malaysian ringgit.

YUAN WEAKENS ON LENDING TOOL

The yuan softened 0.3 percent, edging closer to the psychologically-important 7 per dollar benchmark.

Sentiment was hit by the Chinese central bank’s announcement of a new targeted lending tool late on Wednesday to spur lending to small and private firms, which some analysts said was effectively a targeted rate cut.

The targeted medium-term lending facility (TMLF) is the People Bank of China’s (PBOC) latest step to support a slowing economy amid a trade dispute with the United States.

THAI BAHT FALTERS

The baht weakened 0.2 percent against the greenback, in spite of the Thai central bank’s rate hike.

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On Wednesday, the Bank of Thailand raised its key rate for the first time in more than seven years and cut economic growth forecasts, but signalled it does not expect further hikes anytime soon.

“As inflationary pressure remains benign and there is no currency crisis, the rate hike is viewed as more of a move to build up policy space amid growing economic and political uncertainty related to the upcoming general election in February,” said MIDF Research, in a note to clients.

However, the baht has been the best performer among other Asian currencies this year, weakening only just over half a percent against the dollar.

Reporting by Niyati Shetty in Bengaluru; Editing by Jacqueline Wong

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