Asian currencies traded in a narrow range against the U.S. dollar in early Asian hours Thursday, with analysts pointing to growing expectations that the Federal Reserve will raise interest rates this year as a potential headwind for the region. The Fed’s June policy meeting, the first led by Chairman Kevin Warsh, left the benchmark rate unchanged but removed the easing bias from its statement. The updated dot plot indicated that the median forecast for the federal funds rate at year-end had risen to 3.75% from 3.4% in March.
“Around half of FOMC officials expect a rate hike this year,” said Samara Hammoud, an international economist and currency strategist at Commonwealth Bank of Australia, in a research report cited by the Wall Street Journal.
Hammoud said that expectations of rate increases could enhance the appeal of dollar-denominated fixed-income assets, potentially weighing on Asian currencies. The dollar was 0.2% lower against the South Korean won, trading at 1,524.14, and was little changed at 160.60 yen, according to LSEG data.
The June meeting marked a shift in the Fed’s forward guidance, as it removed language that had suggested the next move was more likely a cut. The central bank’s leadership, under its new chairman, has signaled that inflation remains a concern, and the updated projections reflect a more hawkish tilt among committee members.