Currencies and stocks in Asia’s emerging markets rallied on Thursday as less hawkish than feared messaging from Fed Chair Jerome Powell curtailed safe haven flows to the dollar.

The South Korean won strengthened 0.7%, while the Indonesian rupiah, Singapore dollar and Malaysian ringgit also edged up against a soft dollar which slid to a three-week low.

Overnight, the US Federal Reserve hiked rates by a widely expected 75 basis points, sending US treasury yields lower.

“Asian markets are likely to trade firmer in a relief rally that the Fed did not hike 100bps,” analysts at OCBC said in a research note.

China’s yuan touches two-week high after Fed appears less hawkish than expected

Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate rise and noted that “at some point” it would be appropriate to slow down.

But with markets still unsure of the potential next steps from the Fed, more clarity is needed before Asian currencies see a lasting respite, particularly as fears that more aggressive hikes might tip the US economy into a recession.

Equities in Kuala Lumpur, Seoul and Manila were all up over 1%.

“In the short-term, there is a decent window for Asian markers to capitalise on the Fed’s dovish hike,” said Mitul Kotecha, head of EM strategy at TD Securities.

“But it certainly doesn’t mean that we are going to see a rush-back of capital inflows. Nonetheless, we can expect the pace of outflows to slow.”

Asian markets have seen substantial bond and equity outflows this year, with a surge in US yields and a jump in the US dollar making riskier assets less attractive.

On Wednesday, a senior Indonesian finance ministry official on Wednesday said the central bank’s operation to sell some of its government bond holdings has had limited impact on yields.

Analysts have warned that large sales by BI could hit bond yields and spark further capital outflows from the debt market at a time when investors are wary of investing in risky assets.

On Thursday, the yield on Indonesia’s benchmark bond hit its lowest level in 2-weeks.

In other news, Reuters reported that US President Joe Biden and his Chinese counterpart Xi Jinping are expected to talk on Thursday, with Taiwan and Russia’s invasion of Ukraine expected to be key agenda items.

Highlights

** Indonesia’s palm oil exports gather pace after levy removal – official

** Philippine peso down 0.3%, bucks regional trend

** Hong Kong central bank raises rates, warns of tighter interbank market