Asian Currency Index Plunges to Two-Year Low Amidst China Woes and Trump Uncertainty
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An index tracking Asian currencies has slumped to its lowest point in over two years, driven by a confluence of factors including pessimism surrounding China's economic trajectory and speculation that a Trump administration will bolster the US dollar, reports Bloomberg.
The Bloomberg Asia Dollar Index edged down to 89.93, a level last seen in November 2022. This marks a decline of more than 4% since the end of September, setting the stage for the index's worst quarterly performance in over two years.
Sentiment towards Asian currencies is deteriorating as China's tepid efforts to stimulate its economy continue to weigh on the yuan, a key currency for the region. President-elect Donald Trump's tariff threats, diminishing expectations for US interest rate cuts, and political turmoil in South Korea are further eroding confidence.
"The double whammy of US tariff threats and a stronger dollar path are keeping Asian currencies under selling pressure," said Ken Cheung, a strategist at Mizuho Bank in Hong Kong, to Bloomberg. "Mounting political uncertainties in Korea are adding fresh fuel to won selling, and that's dragging other Asian currencies lower too."
Recent economic data from China has painted a picture of a fragile recovery, with indicators like retail sales showing an unexpected slowdown in November. South Korea's won has been battered by a political saga, as investors closely monitor President Yoon Suk Yeol's impeachment case. The Indian rupee also hit an all-time low on Tuesday.
In the US, the dollar has strengthened since Trump's election victory, with his "America First" policies anticipated to support the greenback. Persistent inflation is also fueling bets that the Federal Reserve may slow its pace of monetary easing.
"Sentiment has soured amid a generally buoyant dollar backdrop," said Mitul Kotecha, head of Asian FX and EM macro strategy at Barclays Bank, to Bloomberg. "Dollar positioning does not appear overly crowded at present and the potential onset of tariffs is expected to keep the dollar supported against Asian FX."
The index tracks nine Asian currencies against the US dollar, with the Chinese yuan and South Korean won carrying the heaviest weightings.