The South Korean won led gains among Asian currencies on Thursday, as global risk sentiment improved on optismism that a deal would be reached in Washington to raise the debt ceiling and avoid a US default that would lead to a recession.

On Wednesday, the U.S President Joe Biden and top US congressional Republican Kevin McCarthy underscored their determination to reach an agreement soon, pledging to negotiate directly on a deal amid estimates that the Treasury could run out of money by the start of June.

“Asian markets could trade with a firmer tone on Thursday amid growing market optimism for a US debt ceiling deal,” analysts from OCBC wrote in a research note.

The South Korean won gained the most among Asian currencies, rising about 0.5%.

Other currencies, such as the Thai baht and Taiwan dollar, rose about 0.2%, while the Singapore dollar traded flat.

The Philippines peso advanced about 0.4%, and was poised for its best day in a week.

A decision on interest rates is expected later in the day from Bangko Sentral ng Pilipinas (BSP).

A Reuters poll showed rates were expected to be left unchanged at the central bank’s regular policy meeting.

“We are also looking out for cues on the BSP rate path where any leanings towards an eventual cut can risk weighing on the peso,” analysts from Maybank said in a note.

Asian currencies edge up after softer US inflation

At 0331 GMT, the dollar index, which measures the strength of the greenback against the currencies of six major trading partners, was hovering below a two-month high at 102.83.

Separately, the Chinese yuan continued to weaken, easing about 0.1% to trade at 7.0026 per dollar, as market participants remained wary of disappointing economic data from Asia’s largest economy. The stock market however rose about 0.7%.

The Chinese currency had crossed the psychological 7 per dollar level on Wednesday for the first time in five months.

The Malaysian ringgit also fell marginally, easing by about 0.1%.

Among Asian shares, equities in Singapore, Thailand , South Korea and Malaysia advanced in the range of 0.1% and 1.1%, while the Indonesian index fell 0.2%.

Markets in Indonesia were closed on account of a public holiday.

Highlights:

** Fed to keep rates untouched this year; risk of US default high

** China to resume Australian timber imports, talks under way for PM visit
** Philippines’ military chief visits remote islands near disputed Spratlys