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The Asian markets this week gave a vibrant taste of what a full -currency fight would look like under Trump 2.0. But we are not yet at panic stations, and surely (touching wood) will not be soon.
It, to be sure, has been a week of high drama in a typical sleepy corner of markets. Apparently from nowhere, the Taiwanese dollar shot on the moon, jumping to the extreme, 10 percent in two days. Even after it calms down little by little, it has increased by 6 percent this month.
However, that was not all. Hong Kong’s monetary authority has also intervened at the most severe pace since 2020 to stop his currency from standing far against his American cousin. Brace yourself, because every day now, the heroes of the have-a-go on a break at the 42-year-old Hong Kong stake against the US currency will reappear. One of the most reliable trades of widows widows there and so help them, the people who have tried and failed in it will try and fail again in it. It is always fun while it lasts.
Of the two, it is the Taiwanese dollar who has attracted the most market attention, and it is easy to extrapolate and disastrous from here. One reason for this is the large amount of dollar exposure to Life insurers in Taiwan – about $ 700BN collected over the past decade, one -third or more without coin protection. Those holders are now sitting at large paper losses.
The speed of climbing the Taiwanese currency is a lawful cause for concern. The straight lines that go up or down on market tables, in almost every class of assets, are a bad thing. It may take time for the bodies to rise to the surface, but someone somewhere will always get a terrible hit and accidents can occur.
In addition, this can easily become self-fulfilling. Asian investors can, quite reasonable, feel unresolved by this shock of the currency and either sell dollar properties completely, or protect against further currency risk – an act that in itself helps to push the dollar further.
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Stephen Jen in Eurizon SLJ Asset Management is among those who warn of the theoretical danger that this can become ugly. In a note this week, he and his colleague Joanna Freire said they counted Asian exporting nations had probably accumulated $ 2.5 in holding the dollar since Pandemia five years ago. This creates what he calls “avalanche danger” to the dollar.
“Changes in basic macroeconomic conditions, such as yield differences, relative fiscal positions, evaluation and geopolitical factors, can potentially cause a non-linear sale in the dollar,” he said. “We continue to believe that investor risks are blinded by such a non-linear sale continue to increase.” It is a tail danger, but one is worth taking seriously.
The other important thing here is the context. Donald Trump is clearly inclined to seal trade agreements around the world, as this week’s agreement with the United Kingdom points out. Viewed through that lens, and especially with the desire in some parts of the administration for a weaker US dollar, jumping in the Taiwan currency can help well to provide some US concerns.
There have been signs that the US administration can distance itself from the notion that Trump may seek to create a major international agreement to weaken the dollar globally and Bolt defense and security guarantees for US government bonds. The idea now seems dead on arrival given the risks to treasures and concentration in tariffs.
But the market is still sensitive where coins can adapt to trade agreements. “There is no direct evidence” that possible tariff talks were a factor here, said Shahab Jalinoos, a coin analyst at UBS in New York. “But if the market believes that something like that is an opportunity, it can be divisive,” as investors and speculators of all strips would try to take forward any deal and extinguish the surrounding markets.
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It is much more likely, Jalino said, that any Asian trade is dealing with the US will be set in unclear insurance that countries are widely supportive, such as the highest interest rates and somewhat stronger coins, with no set levels or time limits. This is more manageable. Suggests slow and steady market adjustments. But canny communication – not exactly the current US costume – will be essential to help it happen.
So the “avalanche” and coin wars are the hazards of the tail here. It is unlikely, but it’s worth keeping in mind, and potentially very divisive. If the year 2025 has not taught us anything else so far, is to be ready for shock.
The argument “everyone calms down”, however, is also very strong. Even after climbing this week, the Taiwanese dollar has increased by 8 percent to BUCK so far this year. This is the euro. Of course, Taiwan’s movement has happened in one eye eye, and this is probably not useful, but that’s just a catch. The broadest discount of the US dollar is also, some scary moments aside, very regular so far.
Second, the most high risks to the dollar remain the same: US geopolitical errors leading to a sudden loss of trust in Buck as the main currency of the global reserve, and American politics errors that create a recession and attract US interest rates quickly.
Asia is unlikely to cause a mess here. SH.BA can still do this in itself.
Katie.martin@ft.com
