The strength of the U.S. dollar roiled Asian markets on Thursday, as investors weighed a U.S. inflation report that showed price increases.
The continued rise of the dollar – particularly against Asian currencies – has intensified economic pressure on the region since the US elections.
In Japan, the dollar rose to 156.10 yen from 155.49 yen, reflecting expectations of foreign exchange gains linked to the new administration of President-elect Donald Trump.
If this trend continues, the strong dollar will likely put increasing pressure on economies that have significant trade ties with China.
“For Asia, particularly for economies closely tied to China, dollar dominance is poised to become an economic wrecking ball,” said Stephen Innes of Capital Economics.
AP Photo/Ahn Young-joon
Countries whose debt is dominated by the dollar are preparing
Stress from a stronger dollar was visible in major Asian stock indexes.
Japan’s Nikkei 225 index fell 0.5% to 38,535.70, while Hong Kong’s Hang Seng plunged 2% to 19,435.95.
China’s Shanghai Composite Index also fell 1.7% to 3,379.84, and Bangkok’s SET Index and Taiwan’s Taiex both posted declines.
India’s Sensex lost 0.2 percent.
“Countries with heavy US dollar-denominated debt are bracing for the consequences,” Innes said.
AP Photo/Peter Morgan, file
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U.S. economic data has fueled speculation about further interest rate cuts by the Federal Reserve, which could increase volatility in global markets.
U.S. consumer inflation accelerated in October to 2.6 percent from 2.4 percent.
However, core inflation – a metric seen as an indicator of future trends – remained stable, reinforcing expectations of additional support from the Fed. That gives traders an estimated 80 percent chance of a third rate cut in December, according to CME Group data.
Economists predict that Trump’s policies, which include lower tax rates, higher tariffs and less regulation, could lead to higher government debt and inflation, although they could potentially boost economic growth.
AP Photo/Ahn Young-joon
Marginal changes in the S&P 500, Dow and Nasdaq
US stock markets reacted mixed to the inflation report.
The S&P 500 fell less than 0.1 percent, ending a rally that began after the Nov. 5 election. The Dow Jones Industrial Average edged up 0.1 percent, while the Nasdaq composite slipped 0.3 percent.
In the energy sector, benchmark U.S. crude oil fell nine cents to $68.34 a barrel on the New York Mercantile Exchange, while Brent crude fell two cents, trading at 72, 26 dollars per barrel. These cuts came amid expectations that lower rates could also affect global oil demand.
The global cryptocurrency market, also influenced by dollar movements, saw Bitcoin trading at $91,590 after recently surpassing $93,000. Trump has expressed support for digital assets, signaling his intention to promote the United States as a leader in cryptocurrency adoption – the consensus remains that Bitcoin will eventually surpass $100,000.
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Future projections for Asian stocks
The strength of the dollar also weighed on Asian currencies, with the Chinese yuan notably depreciating against the dollar.
The yuan, which was about seven to the dollar in early October, now stands at 7.2245.
The Thai baht has also weakened since the US elections, like other Asian currencies.
As U.S. monetary policies change under the new administration, economists warn that an overly strong dollar could create additional hurdles for Asian markets, particularly those with high levels of dollar-denominated debt.
Meanwhile, European stocks rose on Thursday: Germany’s DAX rose 1.2 percent to 19,223.90, while France’s CAC 40 rose 0.8 percent to 7,274.79. Britain’s FTSE 100 index edged up 0.1 percent to 8,042.07.
This article includes reporting from the Associated Press
