Expect gradual weakness in EM currencies

A HAWKISH surprise from the Fed puts December lift-off expectations back on the table. This may trigger a sustained bid for the US dollar against emerging market (EM) Asian currencies especially with bearish positions much lighter and Fed-speak in the weeks ahead likely to dial up the probability of a Fed lift-off this year.

However, investors may be selective in taking bearish exposure in low yielding currencies.

Yields in Asia may grind higher, but fundamentals remain supportive for lower rates in core markets over the medium term. High yielders may come under pressure.