US dollar’s fall in Asia stuns investors, spreads globally

NEW YORK – The US dollar received a fresh jolt this week as speculation around potential trade deals sparked an extraordinary spike in Taiwan’s currency and reverberated across global foreign exchange markets.

The US currency struggled to make headway on May 6 after an unprecedented two-day surge in its Taiwanese counterpart spilled over to other regional peers and highlighted the fragility of the greenback.

The past two-day sharp moves in the Taiwan dollar subsided on May 6, but Hong Kong’s de facto central bank intervened to stop the local currency from strengthening and China’s renminbi jumped in its return from an extended break.

The Taiwanese dollar on May 5 surged to a three-year high of 29.59 per US dollar, having leapt 8 per cent in two days, in a move that coincided with the end of US-Taiwan trade talks in Washington. It was last slightly weaker at 30.185 per dollar.

Currencies like the Australian dollar and the yen also benefited from the fallout, with the Aussie dollar last hovering near May 5’s five-month high at US$0.6467. The yen steadied at 143.69 per dollar, having risen 0.9 per cent on May 5.

Mr Trump’s aggressive trade talk has rattled macro markets since he took office in January, undermining the US dollar’s traditional haven role in times of stress and leading investors to allocate away from American assets.

In recent days, investor focus has been on the scope and nature of any trade and tariff deals that the Trump administration will negotiate with key partners – and whether that will involve a coordinated effort among global policymakers to further weaken the greenback.

“We’re all feeling a little shell-shocked in this part of the world,” Mr Arindam Sandilya, a Singapore-based global forex strategist at JPMorgan Chase & Co, said on a podcast describing the recent moves in Asian currencies.

“The large and synchronised nature of currency appreciation is fuelling talk of some sort of currency accord among the region’s central banks,” he said.

While selling has moderated in May, the Bloomberg Dollar Spot Index is still down nearly 7 per cent in 2025, the most since its inception 20 years ago.

Traders in the speculative derivatives market, meanwhile, are the most bearish on the dollar since September, according to the latest data from the Commodity Futures Trading Commission. 

The surge in the Taiwan dollar since May 2 – driven at least in part by unconfirmed speculation that any possible trade deal with the US could involve a recalibration in exchange rates – typifies the dilemma now faced by global policymakers as investors pile out of American assets amid trade policy uncertainty. 

The rally in Taiwan’s currency has the potential to spill over to the rest of the developing world, said Mr Brad Bechtel, global head of forex at Jefferies.

“Or it portends some sort of currency agreement between the US and China or the US and the region that will result in all Asian currencies strengthening,” he said.

In California on May 5, US Treasury Secretary Scott Bessent countered the idea that investors are selling American assets in response to the Trump administration’s economic policies, calling the US the “premier destination” for global capital. He also spoke on trade.  

“Getting better terms of trade is not always a straight line, not always a pleasant process, but I think, at the end, the trading relationships will be stronger, our security and values ties will still be there,” Mr Bessent said in a conversation at the Milken Institute Global Conference.

Central banks and financial officials are responding to the sharp appreciation in local currencies. 

In Taiwan, the governor of the central bank said at an emergency briefing on May 5 that market commentary has triggered “excessive” buying of the Taiwan dollar by exporters and foreign investors. The nation’s markets regulator, meanwhile, met life insurers holding US dollar-based bonds that are particularly exposed to the rally in the domestic currency. 

“Lower tariff rates and progress on trade deals point to the disruption to the US economy being potentially less than feared, but also could boost Asian economies and their lagging currencies,” said Ms Skylar Montgomery Koning, a currency analyst at Barclays in New York. BLOOMBERG, REUTERS