Dollar slips, Taiwan dollar surge draws eyes

The U.S. dollar slipped again on Monday as a meteoric surge in its Taiwanese counterpart stoked speculation some Asian countries were prepared to engineer revaluations of their currencies to win U.S. trade concessions.

Asia-Pacific currencies were the major developed-market beneficiaries of the fallout from that, and the dollar was down 0.7% on the Japanese yen at 143.94, and the Australian dollar rose a similar amount to a five-month top of $0.6493.

Moves in emerging Asia were more dramatic, and the dollar slid a record 5.7% against the Taiwan dollar to 28.932, adding to a 4.4% move on Friday. That brings the Asian currency to near three-year highs.

Speculation has been building that Taiwan was letting its currency appreciate as part of a trade deal with the U.S., or at least was unwilling to intervene to stop it rising alongside sharp inflows in hot money.

Despite Taiwanese officials’ denials, the currency’s further gains on Monday prompted central bank governor Yang Chin-long to hastily call a press conference at which he stressed yet again that there had been no exchange rate talks with the United States.

Chinese onshore markets were closed but the yuan traded offshore hit its highest in almost six months at 7.1881 per dollar as investors wagered Beijing might let its currency strengthen as part of trade talks with Washington.

The currency was last at 7.1962 per dollar, and even if a full deal remains a way away, analysts at Barclays said in a note “peak tariffs are, locally at least, behind us, which is supportive for risky assets and risk-sensitive FX.”

Asian currencies have been the most exposed to tariff speculation, they said, and so any further easing of tension could offer some additional relief particularly against the euro, given how much it has gained since President Donald Trump announced new, sweeping tariffs on April 2.

But while the Chinese Commerce Ministry has indicated Beijing was evaluating an offer from Washington to hold talks over Trump’s 145% tariffs, the two sides still seem far apart.

In a TV interview aired on Sunday, Trump reiterated that he believed China wanted to do a deal, but offered no details or timeline.

He also said he would not attempt to remove Federal Reserve Chair Jerome Powell, but repeated calls for lower interest rates and called Powell a “stiff”.

The Fed meets on Wednesday and is widely expected to leave rates steady following a solid March payrolls report.

Markets now imply only a 37% chance of a Fed rate cut in June, down from 64% a month ago. Goldman Sachs and Barclays both shifted their cut calls to July from June.

Yet it was notable the dollar only got a limited lift from the jobs data and was struggling to keep the gains.

The next hurdle for the U.S. currency will be the ISM survey of services due later on Monday, with the risk a weak reading could revive worries about an economic downturn.

Things were a little calmer in Europe, where the euro was up 0.48% at $1.1354 and the pound was up 0.4% at $1.3323.

Sterling’s major test this week will be a Bank of England meeting on Thursday where it is widely expected to cut rates by a further 25 basis points to 4.25%. The question is whether policymakers signal faster easing ahead.

Central banks in Norway and Sweden also meet this week and are expected to keep rates steady.

The Swiss franc was little moved by data showing Swiss inflation fell to its lowest level in four years in April. Markets see it as almost certain the Swiss National Bank will cut interest rates again next month, and expect a return to sub-zero borrowing costs later in the year.

Despite that data, the dollar was down 0.45% against the franc at 0.8228, and the franc was steady against the euro at 0.9341 to the common currency. 

Source : Reuters