Ringgit Depreciates Most in Two Weeks on U.S. Interest-Rate Bets

June 18 (Bloomberg) -- Malaysia’s ringgit dropped by the most in two weeks after an inflation report in the U.S. heightened speculation the Federal Reserve will raise interest rates, potentially drawing money away from emerging markets.

The Fed will probably reduce its bond-purchase program by a further $10 billion at the end of a two-day meeting today. The Bloomberg U.S. Dollar Spot Index, which tracks the greenback against 10 major counterparts, climbed the most in two weeks yesterday after data showed gains in U.S. consumer prices accelerated at the fastest pace since October 2012.

“U.S. inflation came in better than expected, and that sets the stage for the Fed to be less accommodative in its monetary policy,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “Asian currencies are lower because people are pricing in the fact an interest-rate hike in the U.S. will come sooner than later.”

The ringgit weakened 0.4 percent to 3.2340 per dollar in Kuala Lumpur, the steepest decline since June 2, data compiled by Bloomberg show. It reached 3.2360 earlier, the lowest level since June 5.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 14 basis points, or 0.14 percentage point, to 5.49 percent.

While inflation quickened in the U.S., it probably slowed in Malaysia. A June 20 report may show consumer prices rose 3.3 percent in May from a year earlier, compared with 3.4 percent in the previous month, according to the median forecast of economists surveyed by Bloomberg News.

U.S. prices climbed 2.1 percent last month from a year earlier, faster than the 2 percent in April and the 2 percent estimate in a Bloomberg survey, data showed yesterday. The Fed may raise interest rates faster than investors previously expected, economists surveyed by Bloomberg from June 12-16 predicted.

Malaysian government bonds were little changed, with the yield on the 4.181 percent notes maturing in July 2024 at 4.05 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey