Resurgent Dollar Pressures Global Currencies, Prompting Official

The dollar’s resurgence on Tuesday led to a significant weakening of many Asian currencies, crossing key levels and triggering interventions by some officials to mitigate the losses.

A strategic move by China to lower its daily yuan reference rate added to the pressure, notably affecting the Indonesian rupiah and the South Korean won. This contributed to a wider impact, with a global index of emerging-market currencies hitting new lows for the year.

The U.S. dollar’s continued rise, now into its fifth consecutive day, was fueled by increasing geopolitical tensions and strong U.S. economic indicators. These factors have heightened expectations that the Federal Reserve may postpone cuts to interest rates. Additionally, the demand for the dollar as a safe haven surged following Iran’s attack on Israel, escalating the conflict to a new level of danger.

The significant weakening of the rupiah past 16,000 against the dollar, a first in four years, prompted Bank Indonesia to intervene in support of its currency.

Amidst these developments, the likelihood of prolonged U.S. interest rates and the volatility in currencies like the yuan and yen are expected to continue affecting the sentiment towards currencies in Asia outside of Japan, according to Christopher Wong, a currency strategist.

Furthermore, any devaluation of China’s tightly controlled currency is likely to have a significant impact, especially on the currencies of its Asian neighbors, given China’s role as a key trading partner. This is particularly true for countries like South Korea and Thailand, but the effects could be broader.

The South Korean won has reached a significant level of 1,400 against the dollar for the first time since late 2022, while the Malaysian ringgit is nearing its lowest point since 1998. Malaysia’s central bank has indicated readiness to support the ringgit amidst these challenges.

The MSCI Emerging Markets Index has seen a 1.8% decline this year, reflecting broader market sentiments. Asian stocks have also suffered, following a global trend of risk aversion, leading to a nearly 2% drop in a key emerging-market equities index, with Korea and Taiwan experiencing some of the largest declines.

As the dollar strengthens and global risks persist, the financial landscape remains volatile, with emerging markets bearing the brunt of these shifts.