wan dollar and the Philippine peso for the second and third quarters on speculation a U.S. recession will steer investors away from emerging markets. Standard Chartered “strongly disagrees” with the decoupling theory that Asian markets will be insulated from a U.S. slowdown. Less reliance on U.S. demand for Asian goods, the emergence of China and improved domestic demand will support regional currencies to some extent, the bank said in a research note dated Jan. 30.
“The transmission mechanism to Asian foreign-exchange markets will naturally be through the stock markets,” Thomas Harr, a senior currency strategist in Singapore at Standard Chartered, said in an interview Thursday. “If the U.S. goes into recession and the stock market tanks, then investors will tend to go out of emerging markets.”
The bank said Korea’s won will decline to 970 and 960 against the U.S. dollar by the end of the second and third quarters, respectively, compared with earlier projections of 945 and 940. The currency closed trading at 943.90 in Seoul Thursday.
Taiwan’s dollar will fall to NT$33 in the second quarter and NT$33.50 in the third, compared with prior forecasts of NT$32.80 and NT$33.00, according to the report.
The Philippine peso will weaken to 41 and 42 versus 40.50 and 41.
The Taiwan dollar traded at NT$32.178 in Taipei Thursday and the peso was at 40.575 in Manila.
The bank forecasts the U.S. economy will have “flat” growth in the first quarter and contract 1.9 percent in the second from the first three months of the year.
“We’re seeing the U.S. economy is really looking very, very bad and is probably already in a recession and that will have an impact on Asia,” Harr said.
The Federal Reserve will probably cut its benchmark rate to 1 percent this year, Harr said. Policy makers lowered the rate Wednesday by 50 basis points to 3 percent.
Harr said Standard Chartered turned “more bullish” on Indonesia’s rupiah because the interest-rate differential with the U.S. will widen, predicting two cuts of 25 basis points in the Asian nation’s 8 percent benchmark rate.
Standard Chartered said the Hong Kong and Singapore dollars “have the highest vulnerability to a slowdown in U.S. external demand” within the Asia ex-Japan region, according to the report.
