Rajeev De Mello, a Geneva-based portfolio manager at GAMA Asset Management SA, said some of Asia’s biggest central banks are dialing back on heavy FX interventions in local markets. He explained that these central banks feared being labeled as currency manipulators by the U.S. during tariff negotiations.
De Mello’s remarks came as the shifting approach of Asia’s central banks to defend their currencies reportedly emphasized the sweeping changes in global markets since the election of Trump. The president’s tariff threats “roiled” asset prices and raised once unthinkable questions about the dollar’s place in the global trading system.
Korea confirmed last month that it held currency talks with the U.S., sending the won higher amid talk that Trump wanted a weaker dollar. However, White House Chief Economist Stephen Miran denied that Washington was working on secret deals to depreciate the greenback, saying the U.S. continues to have a strong dollar policy.
Kalani says reduced interventions will speed up some currency appreciations
India and Malaysia reduce intervention through derivatives. Source: Bloomberg
Gautam Kalani, Portfolio Manager for BlueBay fixed income, emerging markets, at RBC Global Asset Management, said traders were trying to “game out” which currencies had the most to gain from a period of reduced intervention.
The Korean won and the Malaysian ringgit emerged as obvious candidates since both countries had large trade surpluses. He added that reduced intervention would speed up the appreciation of these currencies.
The central banks of India and Malaysia reduced the size of some of the derivatives positions they used to weaken their currencies. Taiwan also allowed its currency to surge against the dollar in recent weeks and dropped hints it would be comfortable with more if the moves were “orderly.” South Korea’s giant national pension fund reportedly ended its five-month support of the won.
However, while the Taiwan dollar is reportedly also highly tipped to appreciate by strategists, Taiwan’s central bank is still likely to use intervention to keep volatility in check. Most market participants think it will allow the local currency to appreciate further even after hitting multi-year highs. Taiwan’s currency has surged 10% against the greenback this year, making it the region’s best performer. The Korean won is up around 6%, while the Malaysian ringgit is more than 4% higher.
Bank Indonesia intervened today as the rupiah fell to a one-month low, after Middle East tensions hit emerging market currencies. The Philippines’ central bank has also sent mixed messages, calling intervention futile but also saying it might have to do so “more seriously” if the current slide in the peso continued. The People’s Bank of China continued to keep its currency on a tight leash.
U.S. Treasury refrains from labeling any country a currency manipulator
The U.S. Treasury refrained from labeling any country a currency manipulator in its June foreign-exchange report. However, it said China, Japan, South Korea, Taiwan, Singapore, and Vietnam all met two out of three of its criteria.
The Treasury also said it would strengthen its analysis of trading partners’ exchange-rate policies going forward. It issued a warning against attempting to engage in “unfair” currency practices. An official in the department pointed out that the U.S. could, in the future, find evidence that China was manipulating its currency and would make a decision in the fall on whether China manipulated the RMB (renminbi).
Treasury Secretary Scott Bessent said the U.S. had notified its trading partners that macroeconomic policies incentivizing an unbalanced trade relationship with the U.S. would not be tolerated. He added that moving forward, the U.S. would use all tools at its disposal to counter unfair currency practices.
The greenback plummeted against major currencies this year, suffering drops of around 10% against the euro and the Swiss franc. The dollar also reportedly tumbled more than 7% this year, easing pressure on emerging market currencies.
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