Ahead Today
G3: US mortgage applications and new home sales
Asia: Bank of Thailand policy rate decision
Market Highlights
The major macro event yesterday was Fed Chair Powell’s semiannual policy testimony to the House Committee on Financial Services. Powell said that the US economy is still strong, allowing the Fed to maintain a wait-and-see approach for now, while it learns about the effects of tariffs on inflation. Regarding policy direction, he said that “many paths are possible”. If inflation is softer than expected, it could support earlier rate cuts, though there is no preset schedule for easing. But if inflation or a resilient labour market continues, that could push back policy easing. For now, the Fed expects to see inflation pick up in June, July, and August due to higher US tariffs.
Several other Fed members also spoke. Fed’s Barr has stuck to the Fed script, emphasizing that the Fed is well positioned to pause rates for now, cautioning that tariffs could raise inflation. Similarly, Fed’s Williams said it is “entirely appropriate” to stand pat for now. But he expects the unemployment rate to rise to around 4.5% by end-year and inflation to come in around 3% due to tariffs.
Regional FX
The US dollar and oil prices fell as the ceasefire between Israel and Iran came into effect, supporting Asian currencies. KRW led regional gains against the US dollar, rising 1.7% yesterday, reversing a 0.8% loss in the prior day.
The key event in Asia today is the Bank of Thailand policy meeting. We expect the BoT to keep policy rates on hold at 1.75%, after rate cuts in the past two meetings. However, the tone from the Thai central bank is likely to be a dovish one. We also maintain a cautious outlook on the Thai baht due to a confluence of fresh political troubles and global uncertainties. For now, markets have not priced in significant domestic political risk in Thailand. The withdrawal of the conservative Bhumjaithai party – the largest coalition partner with 69 parliamentary seats – has significantly weakened the Pheu Thai-led government, leaving it with only a slim majority in the 500-seat lower House. The Bhumjaithai party plans to file a non-confidence vote against Thai PM Paetongtarn when the lower House reconvenes on 3 July.
