On Monday, Malaysia's central bank indicated its readiness to assist its weak currency, the ringgit, which is nearing its lowest value in 26 years. Officials in South Korea, Thailand, and Poland have also expressed their vigilance towards currency fluctuations and promised to intervene when necessary.
Taking a more proactive step, Indonesia is selling dollars to strengthen its currency. Similarly, China is pushing against the depreciation of its currency, the yuan, signifying its commitment to maintaining currency stability.
Inflation data impacts Federal Reserve speculations
Last week's US inflation data, which was higher than expected, lessened speculations of potential interest-rate cuts by the Federal Reserve. This implies that the struggle against the strong dollar isn't likely to cease soon. Rising conflict in the Middle East between Israel and Iran may result in an increased demand for the safe and stable US dollar.
Marcella Chow, a global market strategist at JPMorgan Asset Management in Hong Kong, remarked on the current situation. Chow mentioned the prevalence of verbal intervention from various central banks. Bringing attention to the Fed's possible reluctance to ease policy in the near future, she raised the potential for further weakening in relation to Asian currencies.
This, she suggests, could imply a need for increased verbal intervention. These insights were shared during her interview on Bloomberg TV.
The Federal Reserve's shift to maintain higher interest rates for a longer-than-expected period is generating more activity among central banks. This is especially true as traders anticipate fewer US rate cuts because of persistent consumer price data. It signals that policymakers in emerging markets have their work cut out for them.
Banks navigate currency challenges
Policymakers in Thailand are challenged to back the baht, their currency, which has fallen by approximately 6% this year. They've been attempting to boost its value with persuasive language.
At their meeting on April 10, policymakers expressed their intention to continue closely monitoring the volatilities in the foreign exchange market. Despite the urgings of Prime Minister Srettha Thavisin, who has emphasized the importance of policy easing, they opted to maintain the current interest rates. This decision was driven by their commitment to support the currency.
At their meeting on April 4, Poland's central bank stated they might step in to strengthen the zloty. They explained a stronger local currency could help control inflation.
Officials from the Bank of Korea have stated they are closely monitoring the won, as it faced difficulties last week. Comments on the currency from Governor Rhee Chang-yong last Friday included language suggesting active intervention, according to Director General Oh Kum-hwa, as reported by Bloomberg.
Currency stabilization efforts
Bank Indonesia is taking stronger measures to curb further devaluation of the rupiah. According to the Governor, Perry Warjiyo, they plan on buying more rupiah and selling high-profit bonds throughout this year to strengthen their currency.
The latest intervention happened on April 2, as the local currency hit a four-year low. But it's not just the dollar that is causing problems in Indonesia: the rupiah is also suffering due to worries over the spending plans of the incoming president, Prabowo Subianto.
Peru's central bank reduced its interest rates recently, which surprised many economists. This action is part of its attempts to promote its currency, the sol. The bank has allegedly been selling dollars frequently over the past few months to support its initiative. The aim, as stated by officials, is to decrease the instability in the currency's value.
In response to the rising dollar, Israel's central bank took an unusual step in October. They sold significant amounts of their US currency, not chiefly because of the dollar's strength, but to safeguard the shekel after the Hamas attack. Interventionist efforts have been common among Asian central banks, with these nations experiencing some of the most substantial currency depreciations over the past month.
Paul Mackel, the global head of foreign exchange research at HSBC Holdings Plc in London, emphasized the crucial role of Asian central banks in maintaining a vigilant approach towards emerging market currency dynamics.
According to Mackel, weak currencies often lead to price pressures. He further suggested that the challenging aspect of controlling inflation isn't exclusive to the United States but indeed impacts a variety of global economies.
China's exchange rate dilemma
China presents a typical example of the difficulties experienced in emerging markets: they have to choose between supporting their currency and potentially intensifying the economic slump or allowing it to decline and run the risk of increased capital fleeing the country.
The central bank has opted for a fixed exchange rate method, using yuan fixings as the main tool. Despite the weakening yuan, policymakers have maintained a steady daily reference rate over the past few months. This means that the currency is gradually nearing its 2% daily trading limit around the fixed rate.
The consequences of easing control are clear. On March 22, the People's Bank of China set a lower-than-anticipated fixing rate, and as a result, the yuan suffered its biggest decline in two months.
If the US dollar continues to rise, Khoon Goh, the head of Asia research at ANZ Group Holdings Ltd. in Singapore, suggests that China might need to utilize various strategies to prevent its currency, the yuan, from losing value while ensuring its exchange rate remains stable.