Asian currencies steadied as the Dollar Index rose 0.1% after U.S.-EU trade deal cut tariffs to 15%, boosting dollar strength.
Investor caution grows ahead of August tariffs; USD/KRW +0.3%, USD/INR +0.3%, yuan steady as U.S.-China talks resume.
Fed, BOJ likely to hold rates; USD/JPY steady amid political uncertainty and potential rate hikes post U.S.-Japan deal.
Asian Currencies Stabilize After Dollar Strengthens on U.S.-EU Trade Deal
Asian currencies steadied on Tuesday following sharp declines in the prior session, as the U.S. dollar gained support after the announcement of a trade agreement between the United States and the European Union. The US Dollar Index, which measures the greenback against a basket of global currencies, inched up 0.1% after a more than 1% jump on Monday.
US Dollar Index futures also traded slightly higher during Asian trading hours. The U.S.-EU framework deal, unveiled by President Trump on Sunday, sets a 15% tariff on European imports to the U.S., down from the initially proposed 30%.
While the market welcomed the deal's clarity, many saw it as skewed in favor of Washington, fueling dollar strength and pressuring major Asian currencies.
Trade Tensions Persist as Tariff Deadline and U.S.-China Talks Approach
Despite tentative progress in trade relations, investor caution remains high ahead of the August 1 tariff deadline imposed by President Trump. Additionally, talks between the U.S. and China resumed in Stockholm on Monday, aiming to extend the ongoing trade truce ahead of an August 12 deadline.
Recent movements in key Asian currencies which highlight varying market sentiments influencing exchange rates against the US dollar:
The Chinese yuan remained largely unchanged with both onshore USD/CNY and offshore USD/CNH pairs steady.
The South Korean won continued to weaken, with the USD/KRW rising 0.3% on Tuesday following previous session losses.
The Australian dollar remained subdued after falling 0.7% on Monday, The Singapore dollar's USD/SGD pair increased 0.1% after gaining 0.5% the previous day.
The Indian rupee faced persistent pressure, marking its ninth consecutive decline against the dollar as USD/INR rose by 0.3%.
Central Bank Meetings and Political Uncertainty Shape Market Outlook
Market attention turns to key central bank meetings scheduled this week, with both the U.S. Federal Reserve and the Bank of Japan expected to keep interest rates unchanged. The Fed begins a two-day policy meeting, where no rate adjustments are anticipated; however, investors will closely analyze its forward guidance and the potential for rate cuts later this year.
The BOJ is similarly expected to maintain its current rate policy on Thursday amid global trade uncertainties and domestic political developments. The Japanese yen remained largely steady on Tuesday, following gains in the previous session. Analysts suggest that the recent U.S.-Japan trade agreement could provide Japanese policymakers with flexibility to raise rates later in the year.
Nevertheless, market sentiment in Japan remains cautious amid political uncertainty after the ruling coalition's defeat in the upper house elections and speculation surrounding Prime Minister Shigeru Ishiba’s possible resignation.
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