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Geopolitics weighed on emerging markets more broadly and overall EM currencies traded flat ahead of the U.S. Federal Reserve’s policy decision.

Indonesia's rupiah led minor losses amongst Asian currencies on Wednesday. The rupiah weakened for the third straight session, down 0.2% on the eve of the Indonesian central bank's policy meeting, as the U.S. dollar index hovered near one-month highs. The firm dollar also kept the Philippine peso and the Thai baht 0.1% lower, while the Singapore dollar and Malaysian ringgit were flat. Given that developing countries benefit from a weaker dollar and lower U.S. Treasury yields, investors are hoping for some clarity from the Fed in terms of its policy tightening path. A hawkish message could well set off market volatility across emerging markets. The Bank of Korea released on Tuesday showed that a majority of its board favored reining back stimulus South Korea expected to hike its 0.5% rate earlier than anticipated, starting from October, noting that faster post-COVID-19 economic normalization this year "would generate stronger domestic demand and more demand-side inflation". The WON, however, didn't react much. But Seoul's KOSPI equity index hit a record high as foreigners appeared to buy the economic recovery message and were net buyers of shares.

Indonesia and Taiwan are expected to leave rates unchanged at record lows this week. Strategists at Singapore's DBS bank warned that any steepening of the U.S. rates curve stemming from the Fed meeting carried risks for Asian bonds, which have recently received robust inflows. Rates/bonds of countries that run current account deficits, relatively more dependent on external funding, higher foreign bond ownership and still reliant on central bank bond purchases could see relatively more bear-steepening pressures.Meanwhile, Singapore’s benchmark index gave up gains made in the previous session and slid 0.7%.

Russia’s rouble snapped a four-day losing streak on Wednesday, boosted by higher oil prices and hopes that an upcoming meeting between the Russian and U.S. presidents could help improve severely strained ties between the two nations. The currency was up 0.2%, just before meeting of U.S. President Joe Biden with Russian counterpart Vladimir Putin in Geneva. They are expected to discuss arms control, cyber-hacking and election interference and then hold separate news conferences.

Biden’s meeting earlier this week with Turkish President Tayyip Erdogan failed to generate any positive breakthroughs, Turkey’s lira which lost more than 2% over the last two sessions after the disappointing Biden-Erdogan meeting firmed 0.6%. The central bank’s Thursday meeting is expected to keep interest rates at 19%, pushing cuts to the fourth quarter. But the stakes were higher for Biden-Putin Meeting because the risk premium on Russian assets was down primarily to U.S. sanctions and the potential for more.

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