Fed rate cut expectations cool, dollar strength presses Asian currencies

Summary

Expectations for a US Federal Reserve rate cut are diminishing, causing the US dollar to strengthen and exert pressure on Asian currencies. A recent CIMB report highlighted the Singapore dollar’s weakening against the USD, attributing it to market anticipation of a Fed pause on rate cuts.Golden Finance This sentiment is reinforced by cautious statements on inflation from Fed officials like Governor Cook.Golden Finance The Fed’s decision on January 29 to hold rates steady, the first such pause since September 2025, and the nomination of the reputedly hawkish Kevin Warsh as the next Fed Chair have significantly contributed to this shift, leading to a stronger dollar and a sell-off in Asian markets.券商中国+ 3

Impact Analysis

So the consensus weak-dollar trade for 2026 is getting blown up. Just last week, the dollar had its worst week in months and Asian FX rallied.China Finance Online Now, the narrative has completely flipped. The Fed’s pause was the first shoe to drop,券商中国 but the nomination of a perceived hawk like Warsh is the real game-changer.Zaobao+ 2 The market is rapidly pricing out rate cuts, and Fed officials are reinforcing that with cautious language on inflation.Golden Finance

They want you to focus on the nuance of Warsh’s stance, but the bottom line is the path of least resistance for the dollar is now higher. This puts a lid on Asian central banks’ ability to ease. The structural “re-dollarization” trend, where Asian exporters hoard dollars, will only accelerate. This isn’t a short-term blip; it’s a repricing. I’d be looking to short a basket of AXJ currencies against the dollar, particularly those with dovish central banks and high external debt. The pain trade for the crowded ‘short USD’ position is just beginning.