Hawkish Fedspeak Reverberates Across Asia, China's Caixin Services PMI Tumbles

Regional EM currencies suffered after hawkish Fed rhetoric pushed U.S. Tsy yields higher on Tuesday and into Wednesday's Asia-Pacific session, with markets in China, Hong Kong and Taiwan re-opening after a holiday. Continued spread of Covid-19 in China spoiled mood, especially after the latest Caixin PMI survey revealed its devastating impact on the local services sector.

• CNH: Offshore yuan knee-jerked lower in reaction to the release of Caixin Services PMI, with headline index plunging to 42.0, which represented the worst result since early 2020 and a significant miss of the median estimate of 49.7. The data provided evidence of sharp contraction in the sector, while Shanghai authorities announced a renewed mass testing drive coupled with continued lockdown. That said, spot USD/CNH gradually gave away all of its earlier gains.
• KRW: The won got battered amid firmer U.S. Tsy yields, which were pushed higher by Tuesday's comments from Fed's Brainard, who backed rapid balance sheet reduction from next month. Meanwhile, the BoK seems poised to hold the next monetary policy meeting without a Governor, as the nominee to take the bank's help will only attend his confirmatory hearing in parliament a few days later.
• IDR: The rupiah lost ground, with spot USD/IDR rising to a two-week high. Domestic headline flow was rather limited.
• MYR: Spot USD/MYR clawed back virtually all of its yesterday's losses, pushed higher by firmer U.S. Tsy yields.
• PHP: The peso was not spared from weakness and snapped its recent winning streak, with spot USD/PHP advancing after yesterday's rejection of support provided by its 100-DMA.
• THB: Onshore markets in Thailand were shut in observance of a public holiday.