Ahead Today
G3: US initial jobless claims, trade balance, factory orders, durable goods orders, wholesale inventories
Asia: Philippines GDP
Market Highlights
The US dollar strengthened overnight and held above key support levels for now, led by gains against the yen after comments from Treasury Secretary Scott Bessent reinforced Washington’s strong dollar posture. Bessent stressed that the US is not intervening in the FX market to support the yen. However, we think the US dollar may still stay vulnerable amid policy risks. On trade, Bessent reiterated that progress with South Korea hinges on parliamentary ratification.
Meanwhile, the Fed held rates at its first meeting of the year, maintaining a patient stance as policymakers judged that macro risks are becoming more balanced. Fed Chair Powell said that growth remains solid, unemployment is steady near 4.4%, while inflation at 2.7% is still somewhat elevated. However, Fed governors Christopher Waller and Stephen Miran dissented in favour of another cut. Despite this, Powell emphasized broad consensus within the Committee, reinforcing the view that the bar for further near-term easing seems high.
Regional FX
Asia FX has broadly strengthened amid recent broad US dollar weakness. Against a backdrop of a likely weaker dollar and resilient CNY in the months ahead, we stay constructive on selective regional currencies such as SGD, MYR, KRW, and TWD, which are also aided by the ongoing tech upturn.
We also look for further strength in SGD after it strengthened to 1.2600 level against the US dollar. MAS maintains its current monetary policy stance at the January meeting, leaving the prevailing S$NEER parameters - slope, width, and centre – unchanged. However, what’s notable is that the MAS has raised its forecasts for 2026 core and headline inflation to 1% to 2%, from 0.5%-1.5% previously, driven by healthcare, education and food prices. The upward revision to core inflation still stays within the MAS soft inflation target of 2%, but nonetheless this signals some concerns about the risk of higher inflation, given rising geopolitical tensions and higher oil prices. Our estimates of S$NEER show that it is still about 0.5% below the upper policy band, suggesting scope for further SGD strength should the USD weaken from here.
In Indonesia, the Jakarta Composite Index fell more than 7% after MSCI warned about investability and possible downgrade to frontier-market status. This relates to concerns around free float, or the number of available shares for trading, which may lead to potential price distortion. Unless authorities deliver meaningful transparency improvements by May, Indonesia faces a potential reassessment of its market accessibility classification, which could trigger a reduced weighting in the MSCI Emerging Markets Index and prompt passive outflows from Indonesian equities. Such signals typically heighten market sensitivity to foreign positioning. For the rupiah, the timing is far from ideal: IDR has historically softened when investor confidence wanes. A mitigating factor, however, is the recent softer dollar environment and Bank Indonesia’s continued emphasis on currency stability, which may help cushion downside pressures.