US economic and financial developments: watch the pathways to Asia

In the week ahead, economic, financial and policy developments in the US will take on increased importance for policymakers in Asia. The US Institute for Supply Management (ISM) indices and the minutes of the US Federal Open Market Committee (FOMC) will be published amid expectations of US interest rate rises. Members of the FOMC have indicated that further (and potentially larger) rises are on the way. Any upside surprises in US growth and inflation data will drive further rises in US interest rates, the US dollar and US-dollar denominated assets. This appreciation would likely come at the expense of some of Asia’s currencies that are deemed to be more vulnerable (due in part to their domestic growth and debt backdrops). Additionally, higher interest rates in the US typically have a global knock-on effect, boosting borrowing costs in other economies where it might not be warranted by domestic economic fundamentals; this in turn could hold back economic recovery in a number of economies.