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Asian currencies fell on Wednesday, highlighting the pressure wrought by a stronger dollar as the Federal Reserve races ahead with interest rate hikes.

The Philippine peso slumped to its lowest level in more than 16 years while South Korea’s won slid to the weakest since July 2009. Hong Kong’s de facto central bank bought the local dollar at the fastest pace on record this month to prevent it from crossing the weak end of the trading band.

Regional currencies have been caught out by the Fed’s hawkish bias, which stands in contrast to the more patient policy stance adopted by Asian central banks. Idiosyncratic factors such as a widening current-account deficit for the Philippines and geopolitical risks for South Korea are adding to the pressure.

“Central bank rate signals are becoming a bigger driver of Asian currencies,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore. “Downward pressure on currencies where central banks are behind the curve in managing inflation will increase, particularly as the Fed keeps hiking aggressively.”

The next cue may come from Fed Chair Jerome Powell when he delivers his semi-annual testimony on monetary policy to Congress on Wednesday. He has indicated that another 75 basis-point hike, or a 50 basis-point move, was likely at the next review in July.

The peso dropped as much as 0.7 percent to 54.635 per dollar, its weakest level since November 2005. The won fell to a 13-year low of 1,297.85 to the greenback. The Thai baht and China’s yuan slipped at least 0.4 percent.

Over in Hong Kong, the monetary authority has bought HK$78.1 billion ($10 billion) of the local dollar so far this month, including its HK$20.8 billion purchase on Tuesday. The currency still continues to linger near the weak end of its 7.75-to-7.85 per greenback trading band.

“Ongoing global growth concerns, inflation worries and fears of tighter financial conditions continue to keep a leash on risk appetite,” said Christopher Wong, senior FX strategist at Malayan Banking Bhd. “Those Asian ex-Japan central banks perceived to be behind the curve could further be marginalized, for instance TWD and THB.”

Fed Bank of Richmond President Thomas Barkin said the central bank should raise rates as fast as it can without causing undue harm to financial markets or the economy. Over in Asia, central banks in the Philippines and Malaysia have started tightening policy but are likely to move more slowly than the US.

No hurry

Incoming Bangko Sentral ng Pilipinas Governor Felipe Medalla on Wednesday reiterated the monetary authority is unlikely to raise its key rate by more than 25 basis points on Thursday. 

“Most likely not,” Medalla said in a mobile-phone message, when asked if a bigger rate increase is needed due to the peso’s drop. “Of course I don’t know for sure how MBMs will vote,” he added, referring to Monetary Board members.

Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila, said the peso may fall to a fresh record low if the Philippine opts for gradual rate hikes while the Fed tightens aggressively.

Some other policy makers are more inclined to wait. Indonesia’s central bank does not need to rush to raise interest rates unless it sees fundamental inflationary pressures, Governor Perry Warjiyo said Wednesday. 

Similarly, Thailand has refrained from raising borrowing costs and opted instead to cap prices of essential goods to contain inflation. Bloomberg News