Strength of Asian Currencies Could Harm Economy in the Region

Forex News

The production data showed a mixed picture of economic activity in Asia. The manufacturing sector in China continued to expand in February, a bit at a faster pace. The latest poll of Caixin showed that the index of business activity in China's manufacturing sector rose to 51.6 in February from 51.5 in January. Economists had expected activity in the sector to expand to 51.3. The growth of the manufacturing sector in February was mainly due to the acceleration of the growth of new orders.

The manufacturing sector in Japan continued to expand in February, albeit at a slower pace. The Nikkei poll showed that the index of business activity in the manufacturing sector was 54.1 in February, down from 54.8 in January, although the figure is still well above the 50 mark that separates the expansion from the reduction.

There were fears that the broad weakness of the US dollar, and the strength of Asian currencies, could hinder economies in the Asia-Pacific region, which are mainly export-oriented. A strong currency exacerbates exporters in South Korea, Japan and Taiwan. The Japanese yen is currently trading at 1-year high, the Korean won is at a maximum of more than three years, and the Taiwan dollar is at its highest level in five years.

Markets still believe that central banks in Asia are significantly behind the Federal Reserve in terms of growth this year. Fed chief Jerome Powell said in his first public statement this week that he is aiming to prevent the economy from overheating, reinforcing market expectations of three or four interest rate hikes this year.