Asian currencies have generally fallen to their lowest levels in 20 years recently, mainly due to the strong growth of the US dollar and the vow of US President-elect Trump to raise tariffs. The Bloomberg Asian Currency Index fell to 89.0409 on Monday, its lowest level since 2006. Asian currencies have been pressured by a broad dollar rally as Federal Reserve officials remain cautious about the path of interest rates and investors worry that Trump's tariffs could lead to inflationary pressures.

The dollar will continue to rise across the board against Asian currencies, but some pairs will see greater upside. He pointed out that if US trade protectionism becomes a reality, it would be a huge game changer. Asian central banks may respond to this protectionism by allowing their currencies to depreciate in a controlled manner.

 

The South Korean won fell to a 15-year low in December last year, and the Indian rupee also fell to a record low. Other Asian currencies, such as the Indonesian rupiah, ringgit and Thai baht, have also fallen against the dollar recently, although they are still some distance away from their historical lows during the 1998 Asian financial crisis. In an effort to protect its currency, the Philippine central bank last month stepped up support for money markets, while Indonesia's central bank vowed to be "bold" in protecting the rupiah. On Monday, the Indian rupee fell below 85.8075 against the dollar, hitting a record low. Among G10 currencies, the yen fell the most against the dollar, while the Canadian dollar was boosted by a report in the Globe and Mail that Trudeau is likely to announce his resignation as Liberal leader this week and the Royal Bank of Canada Bank Capital Markets believes the Canadian dollar’s ​​gains are likely to be short-lived given the currency’s “bearish macro backdrop.”

At the same time, Trump "refuted rumors" on social media, and The Washington Post reported that reports that Trump's aides were exploring a tariff plan that would apply to "all countries" but only cover key imported goods were false. This statement caused the US dollar index to rise 50 points in the short term, spot gold fell nearly $13 in the short term, and non-US currencies gave up some of their gains during the day, which marked a significant narrowing of the 10% to 20% general tariff proposed by Trump during the campaign. . Investors therefore increased their bets on a rate cut from the Federal Reserve on speculation that the new plan would not stoke inflation like previous sweeping tariff proposals. Influenced by this news, the US dollar index continued to fall, breaking through the 108 mark and falling nearly 1% on the day. Spot gold turned positive during the day, approaching the $2,650 mark at one point. Non-US currencies also collectively counterattacked, with GBP/USD, EUR/USD, NZD/USD and AUD/USD rising by more than 1%, while USD/JPY erased its intraday gains. The offshore RMB continued to strengthen against the USD, breaking through the 7.33 mark. It rose nearly 300 points during the day.

 

Despite the lack of clarity about Trump’s tariff plans, some companies have begun stockpiling goods in advance, looking for new suppliers and renegotiating contracts, causing import surges and supply chain disruptions. Bloomberg Economics’ base case last year was that starting in the summer of 2025, The United States will see three waves of tariff increases, with tariffs on Chinese goods ultimately tripling by the end of 2026, and smaller tariff increases on the rest of the world - mostly on intermediate and capital goods that do not directly affect consumer prices. Bond traders have lowered their expectations for U.S. Treasuries in early 2025, driven by the resilience of the U.S. economy and President-elect Trump's threats of tax cuts and tariffs. Strong economic data, Trump's Republican victory and cautious comments from Federal Reserve officials have triggered a downturn in the U.S. bond market, and investors are recalibrating their expectations for the Fed.

Markets are unnerved by the prospect that the U.S. government will issue $119 billion in new bonds this week. On Monday, the United States will issue $58 billion in three-year Treasury bonds, and will auction 10-year and 30-year Treasury bonds on Tuesday and Wednesday, respectively. Due to the state funeral of former US President Carter on Thursday, the average daily bond auction in this round is The adjustment hit longer-dated U.S. debt the hardest, with the benchmark 10-year Treasury yield rising to more than 4.6%, about a percentage point higher than when the Fed first began easing monetary policy in September. The yield on the 30-year U.S. Treasury bond rose to 4.85% at one point, the highest level since the end of 2023. The volatility of the two-year U.S. Treasury bond was more moderate, reflecting investors' shift to bonds that are more affected by the Federal Reserve's policy rate.

 

Priya Misra, portfolio manager at JPMorgan Asset Management, pointed out that market concerns about inflation mainly stem from factors such as tariffs, fiscal stimulus and immigration, while optimistic expectations for economic growth come from fiscal stimulus and deregulation, which has led to rising interest rates. and the bond market outlook is bearish. At the same time, Trump's tax cuts and tariff policies may increase inflationary pressure and increase the supply of U.S. Treasuries. Jack McIntyre, portfolio manager at Brandywine Global Investment Management, suggested that it is prudent to hold short-term U.S. Treasuries at this time because the economy is still growing and U.S. Treasury yields have risen. Futures traders expect the Fed to keep interest rates unchanged until June and cut the benchmark rate by only 50 basis points in 2025. If Trump delivers on his policy promises, U.S. Treasury yields may rise, but the increase will be limited and is not expected to More than 5%.

Meanwhile, Federal Reserve Governor Tim Cook said on Monday the Fed could proceed cautiously in further cutting interest rates given the economy is solid and inflation is proving more stubborn than previously expected. Since the Fed began cutting its benchmark interest rate in September, "labor market flexibility has increased, while inflation has been more stubborn than I expected at the time," Cook said in a speech at the University of Michigan Law School. "We think we can be more cautious with further rate cuts." The Fed cut its policy rate by a full percentage point in its final three meetings through 2024, but markets expect it to do so at its next meeting on Jan. 28-29. The Fed will keep its policy rate in the current range of 4.25% to 4.5%.

 

On Friday, the Labor Department will release its latest nonfarm payrolls report, which is expected to show 160,000 new jobs added in December, down slightly from the 227,000 jobs added in the previous month. The weak data will lead people to re-discuss the possibility of the Fed cutting interest rates in March. "Overall, the trend of the U.S. bond market in 2025 will be affected by economic resilience, Trump's policies and the Fed's monetary policy. U.S. nonfarm payrolls data for December on Friday will be closely watched for further signs of U.S. economic growth, while markets reduced bets on the Federal Reserve cutting interest rates this year to seize investment opportunities and avoid risks.

In 2025, the global economy and financial markets will continue to face multiple challenges. Asian currencies were under pressure from a strong dollar and uncertainty over Trump's tariffs, while the U.S. bond market was weighed down by the resilience of the U.S. economy, inflation expectations and policy changes. Investors need to pay close attention to economic data, policy trends and changes in market sentiment in order to respond to possible fluctuations and uncertainties.