The Straits Times says

Higher US dollar a net negative for Asia

Having appreciated more than 8 per cent this year, the US dollar is at close to a 20-year high on the dollar index, which measures it against a basket of six major currencies. It has also risen against Asian currencies as well as those of emerging markets. The dollar's strength, which is likely to continue, will create new strains for Asian economies but is unlikely to lead to a regional currency crisis as had happened in 1997-98. Two main forces have been driving the rise of the US dollar. One is the tightening of monetary policy by the US Federal Reserve since March, which will run through at least the rest of this year. The other is the "safe haven" effect of a flight to the US dollar, which is customary during periods of geopolitical instability, which the world is currently experiencing.

To combat price pressures as well as prevent sharp currency depreciations in the face of the rising US dollar, several countries in the Asia-Pacific have been forced to raise their interest rates recently, including Australia, New Zealand, India, and South Korea. Malaysia hiked its benchmark interest rate on Wednesday, while Indonesia and the Philippines are expected to do so this month. Singapore, which controls inflation through exchange rate policy, has tightened its stance three times since last October. Higher interest rates raise borrowing costs and slow down growth.

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