Asian currencies strengthened against the dollar on Thursday, with South Korea's won leading the pack, after the US Federal Reserve cut interest rates for a third time this year. The dollar weakened against a basket of major currencies after the US central bank lowered its policy rate by 25 basis to sustain growth in the world's largest economy, but signalled a potential pause in the easing cycle.
"Lower Fed rates make it easier for Asian central banks to follow suit and prop up domestic economies here," ING said in a note. Adding that while the signalled "pause" could be viewed as a negative sign, Wednesday's Fed cut might not be the last this cycle as rising global risks could hurt the country's growth prospects. The won, Asia's worst performing currency so far this year, rose by up to 0.7% to its strongest in nearly four months. The currency was set to record its best month since June.
Earlier in the day, Bank of Korea's senior deputy governor said the latest policy decision and comments by the Fed means there is room for the South Korean central bank to cut its policy interest rate if needed. Market sentiment is in favour of risk taking and the Korean won is performing well since it is always seen as the currency that captures the mood in Asian forex markets, said Irene Cheung, senior strategist for Asia at ANZ Banking Group (Singapore).
The Taiwan dollar and the Philippine peso each added 0.2%. The Singapore dollar, Thai baht, Malaysian ringgit and Indian rupee were marginally stronger. The yuan added as much as 0.3% to its strongest in more than 2 months, propped up by a weaker greenback. However, gains were tempered as official data showed factory activity in China shrank for the sixth straight month in October and by more than expected, pointing to further pressure on the country's manufacturers from a trade war with the United States.
China's central bank on Thursday also skipped its targeted medium-term lending facility operations for the first time since their debut in January, prompting some market concern that Beijing may have become less aggressive about monetary easing. The currency was on track to record its best month since January.
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