Marketmind: Asia's FX doom loop

Investors were expecting a poor start in Asian markets on Monday trying to shield themselves from a broad sell-off that battered stocks, bonds and currencies on Friday. Historic slumps in UK bonds and sterling took center stage on Friday, but at the heart of the gloom hanging over world markets was the Fed’s much higher incentive to raise rates than most people’s expectations, and the impact this has on global interest rates.

and dollars. The dollar’s “wrecking ball” status is painful in Asia, several currencies have fallen to multi-year or record lows, countries Central banks have intervened to try to stop the rot. On Friday, the Indian rupee hit a record low, the Indonesian rupiah and 52 Chinese yuan fell to medium term The lowest level since 11, the baht fell to – year low, Won hit -year trough. Currency devaluation increases inflationary pressures, forcing policymakers to become more hawkish, tightening financial conditions and depressing demand . Central banks will find it difficult to break this cycle of doom.

They also have limited foreign exchange reserve pools for intervention purposes – even the Bank of Japan would realize that if last week was historic of dollar sell-off interventions are frequent enough that the $1.3 trillion in reserves will not last forever. Speaking of the doom loop, if Asian central banks sell their large holdings of US Treasuries to prop up their currencies, US yields Rising, U.S. Treasuries are more attractive, investors pile in, and the dollar strengthens. The Asian economic and business calendar was light on Monday. A slew of Japanese economic data including retail sales and consumer confidence, as well as Chinese purchasing managers for September The index, will give us an insight into the health of the region’s two largest economies. weekend. The RBI also announced its latest interest rate decision on Friday.

Major developments on Monday that could give the market more direction :

Germany Ifo (September) 100