(Bloomberg) -- Donald Trump’s tariffs salvo means a resurgent dollar is likely to become an even bigger overhang for Asian stocks, as it erodes the room for interest-rate cuts in a region that has seen economic growth slow.

The latest escalation of trade tensions will not only hurt exporters in the region already reeling from a slowing Chinese economy, but also fuel inflation and keep US interest rates elevated. This will make it harder for regional monetary authorities to implement easing measures.

Currencies from the Australian dollar to Indian’s rupee plunged on Monday after the US said it’ll impose tariffs on China, Mexico and Canada. The region’s stocks also fell, with the 90-day correlation between the MSCI Asia Pacific Index and the Bloomberg Dollar Spot Index around its most negative levels since March 2023, data compiled by Bloomberg show.

“Some parts of Asia/EM will be stuck as long as the trade tariff war lasts,” said Kok Hoong Wong, head of institutional equities sales trading at Maybank Securities. “For example, Indonesia has unexpectedly cut rates to give the economy a boost, but they may not have room to cut further with a weak currency.”

Global funds sold about $12.3 billion of shares in Asian emerging markets outside China in January, the longest such run in data compiled by Bloomberg going back to 2009. They’ve pulled $54 billion over the last seven months.

The MSCI Asia Pacific Index has declined 4.4% since Trump’s election victory in November, while the Bloomberg dollar gauge hit the highest since November 2022 on Monday. In the same period, MSCI Europe has gained 4.4%, with the S&P 500 having added 4.5%.

“For investor sentiment, a stronger dollar often causes investors to pull money out of riskier assets like Asian stocks and move it into safer assets like US Treasury bonds,” said Kimmy Tong, global market & FX strategist at Everbright Securities International. China’s large amount of dollar debt also makes it especially vulnerable, she said.

Singapore, Malaysia, and Vietnam may be under less pressure as they may benefit from global companies’ efforts to reduce exposure to China by adjusting supply chains, according to Maybank Securities’ Wong.

--With assistance from Betty Hou.