Overnight, data from the US showed consumer prices increased more than expected in December, suggesting the Fed may need to maintain high interest rates for a longer period, however the market continues to expect a rate cut soon
Asian emerging markets currencies languished on Friday as higher-than-expected inflation in the US failed to deter March interest rate cut bets, keeping the dollar steady, with most currencies on track to end the week down.
The Philippine peso inched up 0.1% on Friday, but logged a 0.7% drop over the week, set for its biggest weekly loss since late August last year. The Indonesian rupiah, on the other hand, slid slightly and was on track for a second successive week of losses.
Equities in Manila and Thailand were the biggest gainers in the region for the day, climbing 0.8% and 0.3% respectively.
Overnight, data from the US showed consumer prices increased more than expected in December, suggesting the Fed may need to maintain high interest rates for a longer period, however the market continues to expect a rate cut soon, as per CME FedWatch tool.
The tool showed a 73% probability of a rate cut in March as of 0422 GMT, compared to a near 66% probability at the beginning of the week.
Robert Carnell, head of research and chief economist Asia-Pacific at ING, said “the market pricing simply looks wrong.”
Without some sort of crisis somewhere – say a new banking collapse or some massive blow out of commercial real estate credit – I cannot see how the Federal Reserve can possible justify a cut by March, he added.
Analysts at BoA however maintained their view of a quarter-point rate cut in March, writing that a soft core PCE index increases the possibility of the first rate cut in March.
Meanwhile, data from China showed consumer prices extended their decline for a third month in December, while factory-gate prices also dropped, highlighting the persistence of deflationary forces in the world’s second-biggest economy.
Carnell said that China’s CPI data came in negative due to a “very unhelpful” comparison with food prices last year, along with some weakness in current gasoline prices which “reflects an economy that is weak, but not one that is in a deflationary doom-loop.”
The Chinese yuan and stocks in Shanghai were little changed on Friday.
