Global Market: Asian currencies slide as hot US inflation fuels Fed rate hike bets; won hits two-week low

Most emerging Asian currencies weakened on Thursday as hotter-than-expected US inflation data heightened expectations of another Federal Reserve interest rate hike, triggering a global sell-off in artificial intelligence-linked stocks amid concerns over rising borrowing costs.

MSCI's broad emerging-market currency index fell 0.3% in Asian trading, recovering slightly after an earlier decline of 0.4%. The MSCI emerging Asia equities index, heavily weighted towards South Korean and Taiwanese stocks, dropped 3.8% to its lowest level since late July.

Read more: Global Market: Japan’s Nikkei plunges nearly 5% as AI stocks tumble on CoreWeave debt concerns


The South Korean won weakened more than 1% to 1,352.84 per dollar, its lowest level in two weeks, while the Taiwan dollar fell to 32.325 per dollar, its weakest level since early August. Heavy selling in semiconductor stocks in both markets added to pressure on their currencies.

South Korea's KOSPI plunged 7.6% to close at its lowest level since early April, extending its losing streak to seven sessions. The index had fallen more than 9% earlier in the session, triggering a circuit breaker for the first time in two-and-a-half months.

Taiwan's benchmark stock index ended 3.4% lower at a near one-month low. Shares of Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest contract chipmaker, fell 2% to their lowest closing level since late September.

The declines came despite TSMC forecasting fourth-quarter revenue growth of as much as 61% from a year earlier, following its sixth consecutive quarter of record earnings, Reuters reported.

Read more: Global Market: China stocks fall as hot US inflation data revives rate hike fears

US inflation revives rate hike concerns
US consumer prices rose more than expected last month, data released late on Wednesday showed, strengthening expectations that the Federal Reserve could raise interest rates further, potentially as soon as this month.

According to Reuters, the inflation figures unsettled global markets by raising concerns that higher US interest rates could increase borrowing costs and weigh on companies with substantial artificial intelligence-related spending.

US technology stocks tumbled overnight, with Oracle, CoreWeave and other companies exposed to AI infrastructure investment coming under pressure as investors reassessed the cost of financing their expansion plans.

Higher US interest rates typically support the dollar by making dollar-denominated assets more attractive to investors. This can trigger capital outflows from emerging markets, pressure local currencies and increase debt-servicing costs for borrowers with dollar-denominated liabilities.

Peso hits record low, rupiah under pressure
In Southeast Asia, the Philippine peso weakened to a record low of 63.09 per dollar, while the Indonesian rupiah fell as far as 17,957 per dollar before recovering some losses.

Inki Cho, senior financial market strategist at online trading platform Exness, said the inflation surprise had revived expectations of an October Fed rate hike and prompted broad capital outflows from emerging markets.

Cho also highlighted additional structural pressures on the two currencies. The Philippines' dependence on imported oil leaves its trade balance vulnerable to rising crude prices, while Indonesia faces persistent dollar demand for energy imports, debt repayments and dividend payments as dollar supply from goods trade weakens.

Indonesian equities fell as much as 2.3%, reflecting the broader risk-off sentiment across regional markets.

Singaporean shares declined around 1% to a three-month low, weighed down by losses of more than 1% each in top lenders DBS Group and Oversea-Chinese Banking Corp.

Regional markets face multiple headwinds
Emerging Asian assets are facing pressure from rising US yields, uncertainty over the Federal Reserve's policy outlook and concerns about the sustainability of valuations in technology and AI-related stocks.

The International Monetary Fund has also warned of slowing growth in Asia and spillover risks from rising yields, adding to concerns about the region's economic outlook.

Meanwhile, Indonesia's central bank remains active in efforts to stabilise the rupiah, an official said. In Japan, a Bank of Japan policymaker cautioned against excessive caution over interest rate increases, while sources said SK Hynix had made plans for a new US factory conditional on greater US chip equipment exports to China.

The combination of higher US borrowing costs, a stronger dollar and falling technology shares has left regional currencies and equities vulnerable to further volatility as investors reassess interest rate expectations and emerging-market risks.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times.)