Currency rebound provides welcome relief to policymakers

Asian currencies have continued to rebound against the US dollar over the past month, and most are now up by around 5-15% against the greenback since early November. Optimism around China’s reopening and expectations for a Fed policy pivot have been the two key factors behind the turnaround. Appreciating currencies are being welcomed by policymakers across the region, who had become concerned about the risk of higher import price inflation. With economic growth across most of the region slowing (all six countries in the region to have reported Q4 GDP figures experienced slower growth) and inflation dropping back, the rebound in Asian currencies supports our view that central banks are nearing the end of their tightening cycles.