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US Dollar Forecast: Fed Offers Best Week in Months, Pressuring SGD, THB, IDR, PHP

US Dollar Forecast: Fed Offers Best Week in Months, Pressuring SGD, THB, IDR, PHP

Daniel Dubrovsky, Contributing Senior Strategist


What's on this page

US Dollar, Singapore Dollar, Thai Baht, Indonesian Rupiah, Philippine Peso, ASEAN, Fundamental Analysis – Talking Points

  • US Dollar gains most against ASEAN currencies in about 15 months
  • Fed projected 2 rate hikes by the end of 2023, 2-year bond yields rose
  • Singapore Dollar, Thai Baht, Philippine Peso may weaken on PCE data
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US Dollar ASEAN Weekly Recap

The US Dollar not only saw its best weekly performance in about 15 months against its major peers, but that strength also dominoed into emerging APAC markets, including ASEAN. On the chart below, my ASEAN-based US Dollar index soared to its highest since early April. That was also its best weekly gain in roughly 15 months, could this be a meaningful shift in trend?

This follows the Federal Reserve monetary policy announcement. There, the central bank released updated economic projections and where policymakers see rates going in the long run. The key takeaway was that the central bank seems to see that it could deliver 2 rate hikes by the end of 2023. That was a notable hawkish shift from before, which also entails the possibility of policy tapering arriving sooner than expected.

ASEAN-Based USD Index Versus US Yield Curve – Daily Chart

ASEAN-Based USD Index Versus US Yield Curve Daily Chart

External Event Risk – All Eyes on US Core PCE

ASEAN currencies such as the Singapore Dollar, Thai Baht, Indonesian Rupiah and Philippine Peso can at times be sensitive to external event risk, particularly from countries like the United States and China. This is partly due to how economic policy can shift capital flows into and outside of Emerging Markets. Down the road, a Fed that raises rates and tapers policy could send investors slowly away from riskier opportunities.

A stronger US Dollar, coupled with rising benchmark lending rates from the world’s largest economy, could make it more difficult for emerging APAC markets to repay foreign debt. When market sentiment sours, as it did to a certain extent after the Fed, traders also tend to preserve their capital. US government bonds and dollars often end up being a go-to choice for them.

An interesting dynamic that we witnessed after the Fed was a rise in short-term government bond yields as longer-term ones weakened. This resulted in the US yield curve, seen above, shifting lower. Front-end bond rates are currently being depressed by the central bank’s quantitative easing. Still, the 2-year yield shot up to the highest in about 15 months as well.

This may be another sign that the markets are pricing in tapering slightly more confidently now. With that in mind, ASEAN currencies will be nervously eyeing US PCE data on Friday. This is the Fed’s preferred gauge of inflation, and economists are anticipated the core print to cross the wires at 3.4% y/y in May. That would be the most in roughly 30 years. A stronger-than-expected outcome could further push the US Dollar higher.

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ASEAN, South Asia Event Risk – Bank of Thailand, Philippine Central Bank

With that in mind, ASEAN currencies may focus more on external event risk in the coming week. Still, the Bank of Thailand and Philippine Central Bank rate decisions are on tap for USD/THB and USD/PHP respectively. Both of the ASEAN central banks are expected to maintain benchmark lending rates unchanged. Absent a material shift in language, volatility around these events could remain depressed.

Check out the DailyFX Economic Calendar for ASEAN and global data updates!

On June 18th, the 20-day rolling correlation coefficient between my ASEAN-based US Dollar index and the MSCI Emerging Markets index changed to -0.49 from -0.83 one week ago. Values closer to -1 indicate an increasingly inverse relationship, though it is important to recognize that correlation does not imply causation.

ASEAN-Based USD Index Versus EEM – Daily Chart

ASEAN-Based USD Index Versus EEM Daily Chart

Chart Created Using TradingView

*ASEAN-Based US Dollar Index averages USD/SGD, USD/IDR, USD/THB and USD/PHP

-- Written by Daniel Dubrovsky, Strategist for

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.