Asian currencies fall, stocks mixed ahead of Fed chair's testimony

Most Asian currencies eased on Wednesday (21 June) as investor caution prevailed ahead of US Federal Reserve Chair Jerome Powell's congressional testimony, with a lack of stimulus from China further raising concerns.

The South Korean won <KRW=KFTC> and the Thai baht <THB=TH> led losses in the region, weakening 1% and 0.3%, respectively. Equities in Seoul <.KS11> dipped 0.6%.

Investors are keenly awaiting Powell's two-day testimony before Congress which will be scrutinized for clues regarding how long the central bank will keep its restrictive policy in place.

A hawkish clarification from Powell would reinforce the higher rates for a longer narrative, buoying the dollar and exerting downward pressure on most Asian currencies, said OCBC currency strategist Christopher Wong.

"If he (Powell) pushes back on talking about the two hikes this year, then markets may enjoy a breather," Wong added.

Around 77% of investors have priced in a quarter-point Fed rate hike in July, with rate cuts being seen at the end of the year or early next year, according to the CME Fedwatch tool.

The US dollar index <=USD>, which measures it against a basket of currencies, rose broadly to trade at 102.56, up 0.05%.

Meanwhile, the central banks of the Philippines and Indonesia are set to meet on Thursday. Both the Bank Indonesia and the Bangko Sentral ng Pilipinas are expected to keep their key interest rates on hold for the rest of the year, according to separate Reuters polls.

Indonesia's rupiah <IDR=> and Philippine's peso <PHP=> strengthened 0.1%. Equities in Jakarta <.JKSE> and Manila <.PSI> dipped 0.3%.

The Chinese yuan <CNY=CFXS> fell 0.2% on a smaller-than-expected cut to the five-year loan prime rate on Tuesday, with the lack of more forceful stimulus measures to revive the world's second-largest economy impacting sentiment.

"While we were anticipating sequential weakness in China, the extent of the moderation in April and May indicators has surprised us – and is posing downside risks to our lowered 2023 growth forecast of 5.3%," analysts at Barclays wrote in a note.

Barclays does not expect the policy stimulus to provide a significant boost to the economy, though it believes the risk of growth slowing below 5% is low.

"Our forecast of a modest policy rate cut cycle and liquidity easing in coming months – along with a flurry of support for the property, consumer and infrastructure sectors – will likely place a floor under activity and sentiment," they added.