Expectations for a Fed rate cut further heat up, with increased bullish bets on most Asian currencies
The Fed's rate cut expectations are rising, with analysts increasing bullish bets on most Asian currencies. Due to concerns about US economic growth, the attractiveness of the US dollar decreased last week, leading to bullish bets on currencies such as the South Korean won, Thai baht, and Singapore dollar reaching a high for 2023. At the same time, political and economic factors are supporting foreign capital inflows into Thailand. Job vacancies in the US have dropped to a low point, while layoffs have increased, indicating a slowdown in US labor demand. The President of the Federal Reserve Bank of San Francisco hinted that rate cuts will be determined based on economic data
According to the Zhitong Finance APP, analysts have increased their bullish bets on most Asian currencies due to a series of data releases intensifying market concerns about US economic growth. This has increased the possibility of a significant rate cut by the Federal Reserve and weakened the attractiveness of the US dollar.
A survey of analysts on Thursday showed that bullish bets on the South Korean won, Thai baht, and Singapore dollar have risen to their highest levels since January 26, 2023, while bullish bets on the Chinese yuan have also reached their highest level since February 9, 2023. Additionally, analysts have maintained their bullish stance on the Indonesian rupiah, Philippine peso, and Malaysian ringgit.
It is reported that the Singapore dollar has been the best-performing currency in Asia so far this year. Singapore is one of the few countries in the world with a AAA sovereign credit rating, reflecting its exceptionally strong fiscal and external balance sheet, which has solidified its status as a safe haven for investors. In Thailand, the easing of political tensions and favorable economic growth have supported an increase in foreign inflows.
On Wednesday, data from the US Bureau of Labor Statistics showed that job vacancies in the US fell to 7.67 million in July, the lowest level since January 2021. The data also indicated that layoffs in the US increased to 1.76 million, the highest level since March 2023, with the leisure and hospitality industry seeing the most job cuts. These figures are the latest signs of a slowdown in US labor demand.
Meanwhile, Mary Daly, President of the Federal Reserve Bank of San Francisco, stated on Wednesday that the Fed needs to cut rates to maintain a stable labor market, but the extent of the rate cut will depend on upcoming economic data. Daly emphasized the need to "maintain and protect" the health of the labor market, warning that tightening policy too much could further slow down the labor market, which she views as undesirable.
Furthermore, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, mentioned that the Fed's dual mandate of price stability and full employment is currently in balance for the first time since 2021. However, he warned that if the Fed waits for inflation to fully return to 2% before easing policy restrictions, there could be risks to the labor market.
Interest rate futures contracts indicate that traders have increased their bets on a 50 basis point rate cut by the Fed at the September policy meeting. Currently, traders see a 49% probability of a 50 basis point rate cut in September, up from 41% before the data release on Wednesday.
It is worth noting that analysts have maintained their bearish bets on the Indian rupee. Analysts point out that the current low exchange rate of the Indian rupee against the US dollar is largely due to the Reserve Bank of India's efforts over the past decade to build reserves mainly through forex purchases to control the currency exchange rate. The result of RBI intervention is a continuous increase in foreign exchange reserves, abnormally low exchange rate volatility, and active use of forward positions to synchronize forex intervention with domestic liquidity conditions