The dollar edged lower versus most of its major peers on Wednesday after seeing its best five-day gain since October 2022. The greenback’s resilience is exerting pressure on global emerging-market currencies and prompting authorities to ramp up defense against rapid depreciation. 

The won rebounded after breaching a key level in the previous session. South Korean officials said they discussed currency concerns with Japanese counterparts. The Philippine peso weakened past 57-per-dollar for the first time since late 2022, while Indonesia’s rupiah extended a selloff despite the central bank’s intervention on Tuesday.

After recent strong US data, the market is now pricing in 25-to-50 basis point reductions in the Federal Reserve rate this year starting July or September, said Kieran Calder, head of equity research for Asia at Union Bancaire Privée in Singapore. “The resulting stronger dollar is a headwind for most Asia markets and for Japan, pushing the yen towards the increasingly uncomfortable 155 per dollar level.”

MSCI’s Asia Pacific Index climbed slightly after earlier dropping as much as 0.4% amid worries about higher rates and geopolitical tensions. 

Equity benchmarks fell in Japan and South Korea. Shares in mainland China gained as the securities regulator tried to allay concerns about new stock exchange rules following a rout in small-cap shares. 

Treasury yields traded in a narrow range after climbing to fresh 2024 highs Tuesday when Federal Reserve chief Jerome Powell said it will likely take longer to have confidence that inflation is headed toward the central bank’s target. The remarks represented a shift in his message after a key measure of inflation exceeded forecasts for a third month. 

Rate-cut delay

After starting the year by pricing in as many as six rate cuts in 2024, or 1.5 percentage points of easing, traders are now doubtful there will even be a half point of reductions. Market-implied expectations for Fed rate cuts — which have collapsed in the past two weeks — declined further after Powell’s comment on inflation. 

On Tuesday, Fed vice chair Philip Jefferson said he expects inflation will continue to moderate with interest rates at their current level but persistent price pressures would warrant holding borrowing costs high for longer. Richmond Fed President Thomas Barkin said some recent data, including the consumer price index, has not “been supportive” of a soft landing.

Elsewhere, New Zealand home-grown price pressures persisted in the first quarter even as headline inflation slowed to its weakest in almost three years. The yield on the country’s two-year government bonds rose while the kiwi climbed after the report.

Oil edged lower as traders waited to see how Israel would respond to Iran’s weekend attack. Gold held near a record-high.