The DXY Index’s negative bias is becoming increasingly difficult to ignore, following four failed attempts to reclaim the psychological 100 threshold. Filtering out the JPY’s correction (-0.36%) on Tuesday, following its acute rebound driven by joint US-Japan interventions, the strength in the European currencies – EUR (+0.19%), GBP (+0.14%), and CHF (+0.14%) – better represented the greenback’s underlying weakness.
Brent crude prices slipped below $80 per barrel for the first time in four weeks, driven by hopes that the US and Iran have stepped back from attacking each other and resumed negotiations. Following last week’s underwhelming FOMC meeting, the futures markets cut the probability of a September Fed hike to 58% from 72%. The US Treasury 30Y yield eased by 5.3 bps to 5.17% overnight, extending Monday’s 4.5-bps decline. US equities welcomed the shifts, with the Dow and S&P 500 indices climbing to new lifetime highs.
US trade policy uncertainty remains another headwind for the USD. The US Court of International Trade reported that the Trump administration had refunded about $100bn or 60% of the Liberation Day tariffs collected, following the US Supreme Court’s ruling against the tariffs under the International Emergency Economic Powers Act in February. A new legal battle is already underway. A coalition of 25 Democratic-led states has sued the administration over its latest tariffs imposed on 60 trading partners under Section 301 of the Trade Act of 1974, under the pretext of forced labour practices.
For Asian currencies, however, the more important signal came from US Treasury Scott Bessent. He confirmed that Washington’s support for Japan’s efforts to stabilize the JPY from four-decade lows was also intended to prevent a wave of Asian currency depreciation. We are mindful that the European Union wants to press China over the CNY’s undervaluation as part of wider concerns about trade imbalances. Taken together, these developments reinforce the case for investors to pay closer attention to Asian currency appreciation than depreciation risks. With both the JPY and CNY under growing international scrutiny, global policymakers appear increasingly aligned in discouraging competitive currency weakness. This creates room for a broader recovery across Asian currencies, including those that have been disproportionately weighed down by US tariffs and geopolitical tensions in the Middle East.
Quote of the Day
“Judge a man by his questions rather than his answers.”
Voltaire
August 5 in history
The Nikkei 225 Index plunged 12.4% in 2024, marking its largest single-day percentage drop since the original 1987 Black Monday crash.
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