Asian Stocks Drop, Currencies Volatile Amid Fed Inflation Warnings, Middle East Tensions

Asian currencies and equities have been volatile amid escalating tensions between Israel and Iran, which have driven safe-haven demand for the dollar and increased geopolitical uncertainty. The conflict, including missile strikes and military warnings, has pressured emerging Asian currencies like the Philippine peso and Indonesian rupiah, while strengthening the US dollar. Central banks in the region, including Bank Indonesia and the Bangko Sentral ng Pilipinas, are set to announce key monetary policy decisions, with Indonesia expected to hold rates steady and the Philippines likely to cut rates by 25 basis points. Rising oil prices, driven by the Middle East conflict, negatively impact most emerging Asian economies, as they are net oil importers. Despite recent equity rallies, analysts warn that sustained higher oil prices and risk-off sentiment could lead to de-risking and profit-taking in Asian markets. Meanwhile, Federal Reserve Chair Jerome Powell signaled that inflation may rise meaningfully in coming months, complicating the Fed's path to monetary easing despite expectations of two rate cuts later this year.