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How will policymakers react to weaker currencies?

A strong US dollar is a threat to countries with lots of foreign currency debt and/or inflation problems. If Asian currencies remain under downward pressure we expect policymakers to step up their intervention in foreign exchange markets. Another option would be for central banks to follow the lead of Bank Indonesia and hike interest rates. However, lacklustre growth prospects mean central banks will be reluctant to tighten further.

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