Ahead Today
G3: US Q2 GDP 2nd estimate, initial jobless claims, pending home sales
Asia: BSP and BoK policy rate decisions
Market Highlights
The US dollar held steady yesterday, but remains under pressure, weighed down by market expectations for Fed rate cuts and policy uncertainty. Fed Chair Powell’s dovish pivot at Jackson Hole last week has continued to drive a decline in 2-year yields. However, US long-end yields have stayed elevated, not due to growth optimism but concerns about fiscal sustainability, tariff related inflation risks, and questions surrounding the Fed’s independence. Notably, President Trump’s public criticism of the Fed and his stated intention to fire Fed Governor Lisa Cook have raised questions about the central bank’s autonomy. In a recent speech, New York Fed President John Williams has emphasized that maintaining the Fed’s independence is essential.
The combination of potential Fed rate cuts and policy uncertainty could undermine the medium-term outlook of the US dollar. Since the Jackson Hole meeting, the US dollar has weakened by 0.4%. While USD/JPY steadied at 147.40 level yesterday, the yen still led gains in Asia with a 0.7% appreciation against the dollar since Jackson Hole.
Meanwhile, political risks in France are resurfacing. Prime Minister Bayrou’s call for a confidence vote has unsettled markets, pushing the 10-year OAT-Bund spread above 80bps, the widest since April when President Trump announced reciprocal tariffs.
Today’s spotlight falls on the policy rate decisions from the Bangko Sentral ng Pilipinas (BSP) and the Bank of Korea (BOK). The BSP is widely expected to cut its policy rate by 25bps, aiming to support domestic growth amid external trade headwinds and a benign inflation backdrop. Meanwhile, the BOK is anticipated to hold rates steady. Markets will be closely watching for updates to the central bank’s growth and inflation forecasts, which could offer insight into the policy path ahead, especially as Korea navigates a softening global demand environment.
Meanwhile, while several Asian currencies have strengthened against the US dollar since Jackson Hole, high-yielding currencies such as the INR (-0.5%) and IDR (-0.5%) have notably led regional losses over the same period.
In India, the INR has come under pressure following President Trump’s decision to impose an additional 25% tariff on select Indian goods in response to its purchases of Russian oil. This brings total implemented tariffs to 50%. This move is likely to erode the competitiveness of certain Indian goods exports to the US, particularly in sectors like textiles and apparel, though electronics and pharmaceuticals remain exempt.
In Indonesia, the surprise rate cut by Bank Indonesia in August, coupled with weaker coal prices, have weighed on the rupiah. Sentiment may also have been dented by recent domestic unrest, including protests in Jakarta over a recently announced IDR50 million monthly housing allowance for lawmakers. Despite these pressures, we expect the rupiah to stabilize or modestly appreciate against the US dollar in the coming months, supported by a softer USD backdrop.
