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Asian currencies and bond prices fell on Thursday after new evidence of strong US expansion pushed Treasury yields to seven-year highs and fueled a further rise in the dollar.
The yield on 10-year Japanese government bonds reached its highest level since January 2016, after higher US yields. Bond yields rise with falling prices. The Indonesian currency, the rupee, has reached its lowest level in 20 years, at $ 15,165 per dollar, while the Indian rupee has reached the last of its lowest records.
The 10-year US Treasury benchmark rate reached 3.21%, its highest level since July 2011, while the dollar has further advanced against several currencies. The benchmark indices in Hong Kong, India, Indonesia and South Korea each fell by more than 1.5%.
These moves came after reports showed US service-sector activity had set a record high in September and private sector payrolls had risen much more than expected. This has heightened investors' expectations for a continued US economy, allowing the Federal Reserve to continue raising interest rates, even if the recovery in the rest of the world seems less stable.
President Jerome Powell said on Wednesday that the Fed's policy was "far from being neutral", which means that there is much more room for maneuvering interest rates to rise. before curbing growth.
The dollar is highly appreciated for much of the year but began to fall back in mid – August. He resumed his climb at the end of September. The WSJ Dollar Index, which measures the US dollar against a basket of 16 other countries, rose 0.1%, reaching its highest level since May 2017.
"The dollar now has the luxury of stretching its legs and pushing higher," said Gareth Berry, exchange and exchange rate strategist at
Macquarie Bank
in Singapore.
This points to additional difficulties for emerging markets, analysts say. A stronger greenback increases the cost of servicing and repaying dollar debt for countries and businesses. Many central banks have been forced to raise their rates to defend their currencies, making domestic borrowing more expensive. And higher US rates reduce the relative attractiveness of riskier assets elsewhere.
Many profit-hungry investors who had expressed the desire to embark on and buy stocks and bonds in developing economies after previous crises have been more hesitant to do so recently, citing uncertainty regarding the outlook for global trade and economic turmoil in countries such as Turkey and Argentina.
Back in Asia, the market action has put central bankers to the test. Japan's 10-year rate exceeded 0.16%, close to the Bank of Japan's limit; since July, it has allowed this return to rise to 0.2%.
The Bank of Indonesia said it intervened to stabilize the rupee by selling dollars on Wednesday. It has already raised its benchmark rate five times since May in order to attract foreign liquidity.
And although Chinese markets remain closed during the holidays, investors have followed closely the evolution of the yuan in the offshore market. A dollar recently bought 6,9082 yuan, bringing the Chinese currency near its multi-year trough.
Some analysts believe that the People's Bank of China will try to prevent the yuan from weakening to 7 dollars per dollar over the next few months – a level that could frighten domestic investors and trigger capital outflows that would further disrupt the yuan. an economy already in a slowdown.
But it's hard to fight the Fed. "I am still seeing depreciation pressure right now because of a divergence between the Fed's monetary policy and that of the PBOC," said Ken Cheung, senior currency strategist at Mizuho Bank in Hong Kong .
Write to Saumya Vaishampayan at [email protected]
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