The ringgit weakened for a second straight session against the U.S. dollar on Thursday, closing at 4.0765/0805 at 6 p.m. in Kuala Lumpur, as traders priced in a growing chance that the Federal Reserve will raise interest rates in December. The currency touched RM4.0817 during the session, a 0.22% drop, according to Bernama.

The move has wiped out much of the gain the ringgit made after Bank Negara Malaysia left its overnight policy rate at 2.75% on Nov. 5, when it closed at 4.0445/4490. For investors in Malaysian assets, the reversal is a reminder that the currency is trading on U.S. rates rather than on domestic policy. It also hit Bursa Malaysia's biggest lenders, which carry the heaviest weights in the benchmark FBM KLCI.

Hot U.S. inflation turns the ringgit

The trigger came from Washington. U.S. consumer prices rose 0.4% in October from September, above the 0.3% consensus, Bernama reported. The two-year Treasury note yield jumped 18 basis points to 4.74%, and the U.S. Dollar Index rose 0.57% to 102.233.

Fed officials added to the pressure. Fed Governor Christopher Waller indicated that a 50-basis-point increase was possible, and Dallas Fed President Lorie Logan saw at least two quarter-point hikes as necessary, Bernama reported. The Fed's policy committee meets on Dec. 8 and 9.

By Wednesday's close the ringgit stood at 4.0710/0745 per dollar, down almost 0.45% from 4.0540/0580 on Tuesday. Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia, said the odds of a December hike had climbed above 80%. On Thursday the Dollar Index traded between 102.890 and 103.083, and the ringgit slipped further. Afzanizam said the currency was likely to stay under pressure in the near term as markets braced for what could be an aggressive Fed move, and he noted that the Indonesian rupiah had also faced heavy selling.

The ringgit's weakness was confined to the dollar. It firmed against the euro, the pound and the yen on both days. On Thursday it ended at 4.5225/5269 against the euro, from 4.5343/5382, and at 2.5524/5551 per 100 yen, from 2.5609/5632. It also gained against the Singapore dollar, the Thai baht, the rupiah and the Philippine peso.

Just a week earlier, the outlook looked different. On Nov. 5, Stephen Innes, managing partner at SPI Asset Management, told Bernama that expectations of a December Fed hike could cap the ringgit's appreciation until they unwound. The inflation data has pushed those expectations higher instead.

Banks drag the FBM KLCI

The equity market felt the shift first in financial stocks. The FBM KLCI fell 8.88 points, or 0.55%, to 1,595.19 on Wednesday, slipping below the 1,600 level after touching an intraday low of 1,588.75, according to Malay Mail.

Maybank fell 11 sen to RM9.95 and Public Bank lost 15 sen to RM4.53. Hong Leong Bank dropped 50 sen to RM21.48, and the Financial Services index shed 252.56 points to 18,491.21. Tenaga Nasional, another heavyweight, fell 22 sen to RM12.96. CIMB closed unchanged at RM7.08.

Thong Pak Leng, vice-president of equity research at Rakuten Trade, said the U.S. 10-year Treasury yield, which neared 5%, could weigh on sentiment toward emerging markets. He said buying rotated into technology, energy, industrial and construction shares. Mohd Sedek Jantan, director of investment strategy at IPPFA, said the stronger U.S. inflation reading raised expectations that the Fed would keep policy tight for longer, and that local investors were likely to stay cautious.

The selling was narrow. Gainers outnumbered losers 686 to 427, and the broader indices told a different story from the benchmark. The FBM ACE index rose 96.51 points to 5,306.50 and the FBM Mid 70 gained 127.93 points to 17,117.87. Chip-related names were among the top gainers: Malaysian Pacific Industries rose 62 sen to RM38.30 and MI Technovation added 42 sen to RM6.35. Turnover was RM2.33 billion.

What the rate gap means for Malaysia

Bank Negara's decision to hold its rate at 2.75% came as markets moved toward tighter U.S. policy. Local economists have argued that strong domestic growth gives the central bank room to wait. Afzanizam said after the Nov. 5 decision that Bank Negara sees 2026 growth above 5%, and that a 25-basis-point increase in 2027, possibly in the first quarter, should not be ruled out.

A December Fed hike would widen the gap between U.S. and Malaysian rates and test that view. A weaker ringgit raises the cost of imported goods, though it also helps exporters.

The World Bank, in comments on its October Malaysia Economic Monitor reported on Wednesday, said the outlook for the second half of 2026 remained positive, supported by jobs, targeted fiscal support and investment. Zafer Mustafaoğlu, the bank's division director for the Philippines, Malaysia and Brunei, said Malaysia remains exposed "especially through trade and financial channels." He urged the government to rebuild fiscal space and keep monetary policy calibrated.

The next fixed point for the ringgit is the Fed's Dec. 8-9 meeting. Afzanizam had forecast a trading range of RM4.06 to RM4.08 for the pair, and Thursday's intraday low of RM4.0817 already sat just beyond it.