Asian FX face weekly declines as markets await Trump's policy moves

Jan 3 (Reuters) - Most Asian currencies slipped on Friday and were set for weekly declines against a strengthening dollar, as investors braced for fewer Federal Reserve rate cuts and U.S. President-elect Donald Trump's return to the White House.

MSCI's index tracking EM currencies .MIEM00000CUS was near five-month lows and set for a fifth straight weekly loss. The Philippine peso PHP= and the Malaysian ringgit MYR= dropped 0.3% and 0.4%, respectively, on Friday.

The Thai baht THB=TH was down 0.2%, while the Singapore dollar SGD= inched 0.1% higher. Both the currencies were on track for their biggest weekly drop since early November.

The Taiwan dollar TWD=TP was down 0.1%, trading near a five-month low.

The dollar =USD, which began the New Year on a strong note reaching a more than two-year high against major peers, was on track for its best weekly performance in over a month. FRX/

The possibility of U.S. rates staying higher for longer has boosted the dollar and also raised the risk of stark rate differentials between the U.S. and emerging economies that could spur capital outflows.

Moreover, ahead of Trump's inauguration on Jan. 20, markets have stayed cautious due to uncertainty over his plans for hefty import tariffs, tax cuts and immigration restrictions, which have lent further support to the dollar.

The "U.S. exceptionalism" theme under Trump could be the main theme for 2025, which could continue to support the dollar, said Poon Panichpibool, a markets strategist at Krung Thai Bank.

"EM assets would underperform under such conditions and I would expect Q2-Q3 to be the periods that we could witness the weakest level for EM FXs," Panichpibool said.

The South Korean won KRW=KFTC was up 0.1% after a 12-day losing streak, while stocks .KS11 soared 1.8% after the country's acting president ordered financial agencies to deploy market-stabilising measures.

Stocks in both Taipei .TWII and Bangkok .SETI were up 0.3%, after falling sharply in the previous session. Manila shares .PSI jumped 0.9% to a two-week high.

China stocks .SSEC dropped 1.5%, extending a fall from Thursday. They have declined more than 4% in the past two sessions on growing concerns about the domestic economy and fears of a possible trade war with the U.S.