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    How the US Fed’s Rate Hikes are Reflected in Asian Currency Weakness

    The strength of the US dollar and interest rate movements by the Federal Reserve are behind the weakness of Asian currencies.

    Dec 1, 2022 (Upd: Feb 6, 2024)  

    A Strong US Dollar

    The dollar has risen by nearly 20% against many currencies in comparison with this time last year (see below chart of the US dollar Index). The greenback has reached the heights it last scaled in 2002.

    US Dollar Index – 20 Year chart

    The Japanese yen, Malaysian ringgit, Philippine peso, Vietnamese dong, Indonesian rupiah and the Thai baht have all dropped against the greenback as markets began to see that the US Federal Reserve was going to continue lifting rates.

    Few analysts predicted such a strong USD, however in hindsight the role of the US Federal Reserve in pushing up USD at the detriment of most other currencies shouldn’t come as a surprise.

    What is the US Federal Reserve, and Why Does it Matter for Asian Currencies?

    The US Federal Reserve is an independent agency that is responsible for the United States’ monetary policy. It is one of the most important institutions in the world, and this article will explain why.

    The US Federal Reserve (Fed) was created in 1913 by President Woodrow Wilson to regulate the country’s monetary policy and act as a lender of last resort in times of economic trouble. The Fed has 12 regional banks that are spread across the country, each with their own president, board of directors and staff.

    The Fed has three main responsibilities: to conduct open market operations, implement monetary policy and supervise financial institutions. The Fed implements its monetary policy through changes to interest rates by buying or selling government securities on a public exchange like NASDAQ or NYSE.

    It can also change interest rates by changing banks’ reserve requirements; this changes how much cash they have to keep on hand at any time.

    Interest rates are a tool that the central banks use to control inflation and deflation in the economy. Higher interest rates increase the cost of borrowing money, which reduces spending and investment, leading to lower demand and higher unemployment. Lower interest rates have the opposite effect.

    The Basics of How a Higher Interest Rate is Good for the United States & Bad for Asia

    A higher interest rate is good for the United States because it increases the value of the dollar. This also means that it will be more difficult for other countries to buy US assets, which in turn makes it more difficult for them to export their goods.

    A higher interest rate is bad for Asia because it makes borrowing more expensive. This will make it difficult for Asian countries to borrow money from abroad and finance their economies.

    The Result of a Higher Interest Rate in Asia.

    The Fed is expected to continue to raise interest rates into 2023. This will have an effect on both the United States and Asia.

    In the US, a higher interest rate will help to increase the value of the dollar, which will make it a more attractive place for foreign investments. The US dollar is currently strong against other currencies because of this.

    In Asia, a higher interest rate means that borrowing money becomes more expensive for companies and households as companies in this region generally borrow from foreign banks in US dollars. This could lead to slower economic growth in Asia as well as less investment from overseas investors.


    The immediate future direction of Asian currencies will depend on the US dollar and the direction of the US economy and interest rates. So stay tuned!

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    How the US Fed’s Rate Hikes are Reflected in Asian Currency Weakness posted under: Guides News  

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