Asian Currencies Set to Gain as Fed Signals Rate Cuts

The U.S. Federal Reserve's anticipated rate cuts later this year could be a positive development for several Asian currencies. Higher interest rates generally lead to a stronger currency. Still, the Fed's shift toward a more dovish stance could lead to a weaker greenback, which is likely to create opportunities for emerging markets.

Markets now project U.S. rate cuts by the summer, with a potential 25-basis-point reduction in June. The current benchmark borrowing rate of 5.25% to 5.50% will in all likelihood be adjusted. 

Experts have highlighted the potential beneficiaries of the Fed's loosening monetary policy, including the Chinese yuan, the Korean won, and the Indian rupee. 

Despite headwinds, including trade tensions and economic challenges, the yuan's depreciation is expected to be limited. China's efforts to stabilize the currency against the dollar will likely keep the exchange rate within a narrow band around the current rate of USD 1.00 to RMB 7.10. 

The Indian rupee has already strengthened to INR 82.82 against the dollar in the last three months and could continue to appreciate.

South Korea's won, which has faced pressure for three years, is poised for relief with improving economic prospects and a looser Fed policy. The currency stands to gain between 3% and 10% depending on the extent of the Fed's easing cycle. The IMF predicts South Korea's economic growth to reach 2.3% in 2024 and 2025, up from 1.4% in the previous year.