Most Asian currencies retreated in cautious trade on Wednesday as markets positioned for a likely interest rate hike by the Federal Reserve later in the day, although waning fears of a bank crisis made for small losses in regional currencies.<\/p>\n
The Fed is expected to\u00a0hike interest rates by 25 basis points<\/a><\/span>, given that inflation is still running well above the central bank\u2019s target rate. Markets are pricing in\u00a0an over 80% chance<\/a><\/span>\u00a0that the bank will hike rates later in the day, according to Fed Funds futures prices.<\/p>\n But the dollar saw limited support on Wednesday, with the\u00a0dollar index<\/a><\/span>\u00a0and\u00a0dollar index futures<\/a><\/span>\u00a0falling slightly amid uncertainty over the Fed\u2019s outlook on monetary policy. The two were also trading close to their lowest level in five years.<\/p>\n Treasury yields rose on Wednesday, but were trading well below highs hit earlier this year.<\/p>\n While concerns over a banking crisis appear to have eased, further raises in interest rates could put more lenders at risk, which in turn could limit the Fed\u2019s ability to tighten policy. But prior to the banking crisis, Powell had espoused a hawkish stance for the central bank amid high\u00a0inflation<\/a>\u00a0and strength in the labor market.<\/p>\n The central bank had also rolled out emergency liquidity measures to stem a broader crisis, which largely undermined its monetary tightening over the past year.<\/p>\n The Fed will announce its decision on interest rates by 14:00 ET (18:00 GMT), followed by a press conference by Chair Jerome Powell an hour later.<\/p>\n Still, rising interest rates bode poorly for Asian currencies, as the gap between risky and low-risk debt narrows. Regional units were hit hard by the Fed\u2019s rate hikes through 2022.<\/p>\n The\u00a0Chinese yuan<\/a><\/span>\u00a0fell less than 0.1% on Wednesday as the People\u2019s Bank set a slightly stronger daily midpoint, while the\u00a0Taiwan dollar<\/a><\/span>\u00a0and\u00a0South Korean won<\/a><\/span>\u00a0shed 0.2% and 0.3%, respectively.<\/p>\n