Dollar’s Plunge In Asia Stuns Investors And Spreads Across Globe

The US dollar got a fresh jolt to start the week as speculation around potential trade deals sparked an extraordinary spike in Taiwan's currency and reverberated across global foreign exchange markets.

Already under pressure as President Donald Trump's economic agenda dents attitudes around American assets, the greenback weakened further on Monday against nearly all major currencies, with a Bloomberg gauge of the dollar falling almost 0.3% as of 11:20 a.m. in New York. Taiwan's dollar led gains among the 16 major peers tracked by Bloomberg, earlier jumping the most in more than three decades on an intraday basis. The yen rallied some 0.9%, leading gains among the Group-of-10, while the euro pushed above the $1.13 mark.

Trump's aggressive trade talk has rattled macro markets since he took office in January, undermining the dollar's traditional haven role in times of stress and leading investors to allocate away from US assets. In recent days, investor focus has been on the scope and nature of any trade and tariff deals that the Trump administration will negotiate with key partners — and whether that will involve a coordinated effort among global policymakers to further weaken the greenback.

“We're all feeling a little shell-shocked in this part of the world,” Arindam Sandilya, a Singapore-based global FX strategist at JPMorgan Chase & Co., said on a podcast describing the recent moves in Asian currencies. “The large and synchronized nature of currency appreciation is fueling talk of some sort of currency accord among the region's central banks.”

While selling has moderated in May, the Bloomberg Dollar Spot Index is down nearly 7% this year, the most since its inception 20 years ago. Traders in the speculative derivatives market, meanwhile, are the most bearish on the dollar since September, according to the latest data from the Commodity Futures Trading Commission.

The surge in the Taiwanese currency since Friday — driven at least in part on on unconfirmed speculation that any possible trade deal with the US could involve a recalibration in exchange rates — typifies the dilemma now faced by global policymakers as investors pile out of American assets amid trade policy uncertainty.

The rally in Taiwan's currency has the potential to spill over to the rest of the developing world, said Brad Betchel, global head of FX at Jefferies. “Or it portends some sort of currency agreement between the US and China or the US and the region that will result in all Asian currencies strengthening,” he said.

Central banks and financial officials are consequently responding to the sharp appreciation in local currencies.

In Taiwan, the governor of the central bank said at an emergency briefing Monday that market commentary had triggered “excessive” buying of the Taiwan dollar by exporters and foreign investors. The nation's markets regulator, meanwhile, met with life insurers holding US dollar-based bonds that are particularly exposed to the rally in the domestic currency.

“Lower tariff rates and progress on trade deals point to the disruption to the US economy being potentially less than feared, but also could boost Asian economies and their lagging currencies,” said Skylar Montgomery Koning, a currency analyst at Barclays Plc in New York.