Asia FX Talk - Stronger US services activity

Ahead Today

G3: US Dallas Fed manufacturing activity, Germany IFO business climate

Asia: China’s 1-year medium term lending facility, Singapore CPI, Taiwan industrial production

Market Highlights

The US dollar index (DXY) gained 0.5% to close at 107.55 last Friday, on the back of persistent “Trump trade” and a still resilient US economy. US services activity accelerated, with the services PMI rising to 57 in November from 55 in October. Meanwhile, US manufacturing activity picked up slightly to 48.8 in November from 48.5 in October, albeit still in contractionary territory. The US dollar could consolidate its gains above the 107.00 resistance level, before potentially making its way higher early next year when Trump takes office. Trump has nominated Scott Bessent to lead the US Treasury. Bessent has backed Trump’s tariff plan, and he sees tariffs as a negotiating tool and means to generate more fiscal revenue. Bessent has also hinted at nominating a replacement for Fed Chair Powell before Powell’s term expires in May 2026. This could lead to a “shadow Fed Chair”.

Meanwhile, the euro has been under persistent depreciation pressure since October, falling 6.4% against the US dollar. EURUSD fell to an intraday low of 1.0335 last Friday before retracing losses and closing slightly above the 1.0400-level. Germany’s economy stagnated in Q3, growing just 0.1%qoq. The decline in euro-area manufacturing activity worsened, while its services PMI fell to 49.2 (<50 indicates contraction) in November from 51.6 in October.

Regional FX

Asian currencies broadly weakened against the US dollar, with KRW (-0.5%) leading losses in the region. USDCNY extended its gains modestly last Friday to close above key resistance level at 7.2470.

However, USDIDR fell 0.3% last Friday to close at 15,875. Bank Indonesia’s decision to keep its policy rate unchanged at 6.00% this month, along with FX intervention, have likely supported the rupiah for now (see Indonesia: A slower pace of BI rate cuts ahead given rupiah headwinds). But we’re biased for modest depreciation pressure on the rupiah this week. We think US core PCE inflation could rise 0.3%mom or 2.8%yoy in October, up from 2.7%yoy in September, supporting US dollar strength.

Meanwhile, USDSGD stabilized at 1.3467 last Friday, after retreating from the 1.3500 resistance level. Still, USDSGD could see further upsides, given potential US tariff hikes early next year. The key highlight today is Singapore’s CPI inflation data for October. We expect Singapore’s core CPI to ease to 2.5%yoy, from 2.8%yoy in September, partly due to high base effects from a year ago. We also maintain our outlook that Singapore’s core inflation will step down to slightly under 2%yoy by end-2024, paving the way for the MAS to start loosening its exchange rate policy setting slightly in January 2025. Meanwhile, Singapore’s Prime Minister Lawrence Wong will take over as secretary-general of the ruling People’s Action Party (PAP). He will lead the PAP into the next general election, which must be held by November 2025.