Most emerging Asian currencies rose on Tuesday as traders were encouraged by positive developments in talks between Chinese Premier Xi Jinping and U.S. President Joe Biden, with the South Korean, won hovering at its strongest level in two weeks.
Jinping and Biden opened talks warmly and stressed their responsibility to avoid conflict. They are expected to discuss a range of issues including tariffs on China imposed by former U.S. President Donald Trump.
Against this backdrop, China’s yuan hit its highest in more than five months. The Thai baht and the Singapore dollar firmed 0.1% each, while the South Korean won rose as much as 0.3%.
Asian investors trod a cautious path Tuesday, with surging inflation the key point of concern on trading floors, while eyes were also on a virtual summit between Joe Biden and Xi Jinping as they plot their way through a period of tension between the superpowers.
Global markets have enjoyed about 18 months of healthy gains — with many hitting record or multi-year highs — thanks to ultra-loose central bank monetary policies put in place at the start of the pandemic.
But with the recovery well on track and people returning to a semblance of normality, inflation is surging to levels not seen in decades owing to a spike in demand and supply chain snarls — forcing policymakers to turn off the taps.
Now there is a growing concern that officials — particularly at the Federal Reserve — will have to withdraw their massive support measures faster than hoped, while some observers have warned they could be leaving it too late, and risking prices running out of control.
Among them are former New York Fed president Bill Dudley, who told Bloomberg TV the central bank was “going to have to get the taper done quicker”, though he added that moving too fast could spook investors and cause a “taper tantrum”.
The concern was also being felt across the Atlantic, where Bank of England chief Andrew Bailey said he was “very uneasy about the inflation situation”.
Still, for now, investors remain optimistic that officials are on the right track, with Wall Street’s three main indexes as well as markets in Europe sitting at or just below all-time highs.
Tuesday’s release of data on October retail sales will be closely followed for an idea about the impact of inflation on consumer appetite.
In early trade, Hong Kong led gains with tech firms building on a recent advance as concerns about China’s recent crackdown on the sector ease, while the crisis at developer China Evergrande has also moved into the background.
Traders are awaiting news on the talks between Biden and Xi, which saw the two sides looking for better communications with relations rocked by a series of crises including on Taiwan, human rights, and trade.
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