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The USD eased with Treasury yields overnight, after US Dec core inflation came in a tad softer than expected at 0.2% m/m. But markets should look past CPI to focus on Bessent’s confirmation hearing for Treasury Secretary today. Since the US elections, the USD has been buoyed on risks of Trump tariffs and wider fiscal deficits. Bessent may offer insights on these issues given his “3-3-3” economic plan, which includes bringing down the Federal budget deficit to 3% of GDP and getting growth to 3%.
JPY and KRW are the best performing Asian currencies this week, with USD/JPY and USD/KRW easing towards 156 and 1450 respectively. JPY was buoyed after BOJ Governor Ueda said that the central bank will decide whether to raise rates next week, adding that he heard many encouraging views on pay during new year events and at branch managers’ meetings. The BOJ has said in Dec that it will wait for further clues on wages and US policy, and it now seems to have sufficient comfort on the former, even if the latter remains a wild card until Trump takes office. The JPY could bump higher into next week’s BOJ meeting on a paring of carry trades, with markets now pricing in a greater than even chance of a hike.
In Korea, President Yoon has been arrested by the Corruption Investigation Office (CIO) yesterday, while the Constitutional Court will hold a second hearing of his impeachment trial. Despite political uncertainty, KRW is likely to hold firm due to strategic FX hedging by the National Pension Service, which has already started to sell USD/KRW. The NPS’s internal rule allows for FX hedging if USD/KRW stays above 1450.
BI carried out a surprise 25bps rate cut yesterday, which could drive outflows and prompt further IDR depreciation. USD/IDR saw a modest 0.3% gain to 16320, but the impact was likely curbed by BI, which has confirmed that it was in the market to smoothen IDR movement. Still, it will be difficult to ward off IDR weakness as policy shifts towards a pro-growth stance.
Quote of the Day
“Some things are so unexpected that no one is prepared for them.”
Leo Rosten
January 16 in history
The Persian Gulf War, triggered by Iraq's occupation of Kuwait in August 1990, began on this day in 1991.\
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