US Rate Hike Challenges Asia

The final month of 2016 saw the US embark on its first interest rate hike for the year as the Fed lifted borrowing costs by a quarter percentage point to a range of 0.5-0.75%. The increase had been widely anticipated and followed a previous rate hike twelve months earlier. With the US economy firmly on a recovery path, further monetary tightening is widely expected this year. The prospect of higher rates in the US has attracted capital flows into the US$ as investors seek higher returns. For Asia, money flowing out of the region has resulted in a general weakening of Asian currencies against the US$. As well as higher rates in the US, Asia is also facing uncertain trade policies with its largest export market following the election of Donald Trump. His inward-looking US trade policies will challenge Asia’s export-oriented economies.

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