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Asian markets this week gave an animated sample of how a complete monetary war could be under Trump 2.0. But we are not yet in panic stations, and probably (wood touch) we will not be in the short term.
Without a doubt, it has been a week of high drama in a typically sleepy corner of the markets. Apparently out of nowhere, the Taiwanese dollar shot at the moon, jumping, at the ends, 10 percent in two days. Even after calming yourself a little since then, it has increased 6 percent this month.
However, that was not all. Hong Kong’s monetary authority has also intervened to the heaviest rhythm since 2020 to prevent his currency from rising too much against his US cousin. Prepare, because at any time, the heroes who have a commitment to a break in the 42 -year -old plug of Hong Kong against the US currency will resurface. It is one of the exchanges of creators of more reliable widows and, therefore, help them, the people who have tried and failed before before they will try again. However, it is always fun while hard.
Of the two, it is the Taiwanese dollar that has captured the most attention of the market, and it is easy to extrapolate and catastrophize from here. A reason for that is the huge amount of exposure to the dollar with life insurers in Taiwan: around $ 700 billion accumulated in the last decade, one more or less third without monetary coverage. Those headlines are now sitting in large paper losses.
The speed of ascent in the Taiwanese currency is a legitimate cause of concern. The straight lines that go up or down on market lists, in almost any kind of assets, are something bad. It can take time for the bodies to rise to the surface, but someone somewhere will always receive a horrible blow and accidents may occur.
In addition, this can be easily self -fulfilling. Asian investors could reasonably feel restless about this currency coup and sell dollar holdings directly, or protect against greater monetary risk, an act that in itself helps to boost the lowest dollar.
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Stephen Jen in Eurizon Slj Asset Management is among those who warn about the theoretical risk that this can be put ugly. In a note this week, he and his colleague Joana Freire said they calculated that the Asian exporting nets had accumulated up to $ 2.5TN in hoarding dollars from the pandemic five years ago. This creates what he calls “risk of avalanche” for the dollar.
“Changes in underlying macroeconomic conditions, such as yield differentials, relative tax positions, valuation and geopolitical factors, could trigger a non -linear sales sale in the dollar,” he said. “We continue to believe that the risks of investors being blinded by a non -linear mass sale continue to increase.” It is a risk of tail, but it is worth taking seriously.
The other important thing here is the context. Donald Trump is clearly interested in sealing agreements in commerce worldwide, as shown by this week’s agreement with the United Kingdom. Seen through that lens, and especially with the desire in some parts of the administration by a weaker US dollar, the jump in the Taiwanese currency could help calm some US concerns.
There have been signs that the US administration could be distanced from the notion that Trump could seek to forge a great international agreement to weaken the dollar worldwide and the guarantees of defense and security of the United States government bonds. The idea now seems dead upon arrival given the risks for treasure bonds and the focus on tariffs.
But the market is still sensitive about where they could fit the coins for trade agreements. “There is no direct evidence” that the possible tariff conversations were a factor here, said Shahab Jalinoos, UBS coins analyst in New York. “But if the market believes that something like this is a possibility, that could be harmful” since investors and speculators of all stripes would try to anticipate any agreement and push the markets.
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It is much more likely, said Jalinoos, than any Asian commercial agreement with the US. That is more manageable. It suggests slow and stable adjustments of the market. But cunning communication, not exactly the current strong suit of the United States, will be key to helping to happen.
Then, “avalanche” and the currency wars are the risks of tail here. Unlikely, but it is worth taking into account, and potentially highly harmful. If 2025 has not taught us anything else until now, it is being ready for clashes.
However, the argument of “everyone calms down” is also quite strong. Even after this week’s surprising ascent, the Taiwanese dollar has increased by 8 percent against the dollar so far this year. So is the euro. Of course, the Taiwan movement occurred in the blink of an eye, and that is possibly not useful, but this is just a petition. The widest decrease in the US dollar is also, apart from some terrifying moments, very ordered so far.
Second, the really large risks for the dollar remain the same: geopolitical errors of the United States that lead to a sudden loss of confidence in the dollar as the main global reserve currency and the policy errors of the United States that create a recession and drag the interest rates of the United States quickly.
It is unlikely that Asia causes a disaster here. The United States can still do everything alone.
katie.martin@ft.com
