Investors are revisiting intervention strategies as the resurgent dollar sparks fears of renewed efforts by officials to safeguard their currencies. Taiwan’s central bank issued a rare statement this week to reassure investors amid a decline in global funds holding the island’s stocks and a dip in the local currency. Meanwhile, a South Korean official expressed on Wednesday that the won’s weakness is excessive, and China’s central bank actively supported its currency throughout the week. Speculation is growing that the yen may be the next target.
Kyle Rodda, an analyst at Capital.com Inc. in Melbourne, noted, “More intervention across markets is a legitimate concern.” He highlighted that a stronger dollar is reviving currency concerns among policymakers, potentially intensifying volatility in traders’ positions.
Bloomberg’s dollar gauge has risen approximately 2% this year, with the currency strengthening against all major counterparts. This development serves as a reality check for investors betting on dollar weakness and for authorities hoping for a break from currency challenges.
Asia, home to the world’s two worst-performing major currencies against the greenback, faces heightened risks. The yen has declined nearly 5% this year, prompting concerns of imminent intervention as it approaches the 150-per-dollar level. The won has reached its lowest point since November, and Taiwan’s dollar has dropped more than 1% in a single week.
Lemon Zhang, a strategist at Barclays Bank Plc in Singapore, anticipates actions from the Bank of Korea and the People’s Bank of China to stabilize market volatility. She suggests that Korea’s central bank may act more aggressively, potentially leading to a wide trading range for the dollar-won.
Countries with weak current-account and fiscal deficits, such as India and Indonesia, may face challenges supporting their currencies if the dollar continues to strengthen, warns KB Kookmin Bank. Conversely, nations with greater financial resources, such as South Korea and Japan, are likely to take a more proactive stance, according to Moon Junghiu, an economist at the Seoul-based lender. Moon highlights that the won has been the most volatile lately, making it particularly susceptible to intervention.
