Singapore Dollar

Friday Morning: Asia Holds Its Breath

Friday began across Asian currency markets with a sense of uneasy calm. Most regional currencies remained confined to narrow trading ranges, seemingly waiting for developments unfolding thousands of kilometres away. The Middle East once again became the main source of market-moving news, and its influence outweighed even the much-anticipated weakening of the US dollar.

The US Dollar Index, which fell to one-month lows this week following softer inflation data, edged up by 0.1% to 100.79 on Friday morning. The move may appear insignificant, but it was enough to encourage caution among Asian currencies. The dollar continues to benefit from its safe-haven status, and whenever geopolitical tensions intensify, investors begin turning back toward the US currency despite its fundamental weaknesses.

The situation in the Middle East is indeed becoming increasingly tense. The United States and Iran continue to exchange strikes, while yesterday’s reports of renewed military action confirmed that neither side appears ready to de-escalate the conflict. Oil prices remain close to one-month highs, automatically triggering a chain of rising inflation expectations. More expensive oil means higher energy costs, higher consumer prices and, ultimately, tighter monetary policy. For Asian economies, most of which are net energy importers, this represents a double blow.

The Yen: Near a 40-Year Low and Hoping for a Miracle

The Japanese yen remains the central currency drama of the year. The USDJPY ... pair is once again trading near 162.4, only a few tenths below the 40-year low of 162.84 reached earlier this month. The yen has not been this weak since the Japanese economy was operating under entirely different conditions.

The reasons behind the decline are well known and no longer surprise market participants. The enormous interest-rate gap between the United States and Japan continues to work against the yen. While...

Introduction: A Monday When the Dollar Goes on the Offensive Again

Monday, the Asian trading session. Traders in Tokyo, Seoul, Shanghai, and Singapore open their terminals and see a familiar picture: the dollar is advancing again. Most Asian currencies have weakened, while the Japanese yen remains near 40-year lows, forcing markets to stay alert for possible government intervention.

USD/JPY rose by 0.3% to 161.82 yen, remaining close to levels last seen in 1986. This is not just a number; it is a psychological threshold beyond which the territory of intervention begins. Japanese officials have been issuing verbal warnings for several weeks, but markets have largely ignored them.

What is happening? A weak U.S. labor market report last week, which cast doubt on the Fed’s ability to raise rates, should have weakened the dollar. And indeed, the dollar index fell by 0.5% over the week. But on Monday, it began rising again, recovering part of its losses. The reason is persistent concern over stubborn U.S. inflation, which may force the Fed to maintain a tough policy stance in the coming months.

The yen remains the main victim of this dollar rally. The Bank of Japan raised interest rates in June and warned of possible further tightening, but this did not help. The interest rate gap between the United States and Japan remains enormous, and as long as this gap persists, the yen will remain under pressure.

Other Asian currencies are also feeling uncertain. The South Korean won, Chinese yuan, Singapore dollar, Taiwan dollar, and Indian rupee have all weakened against the dollar. Even the Australian dollar, often considered a barometer of commodity markets, fell by 0.2%.

This week, the focus will be on the minutes of the Fed’s June meeting. They may provide additional signals about the path of interest rates....

A Chance to Catch Their Breath

Thursday brought a welcome pause to Asia’s currency markets. After several days of relentless pressure from the U.S. dollar—rolling through markets like a tank—things finally calmed down. Asian currencies, which had been losing ground day after day, stopped falling. They are not rising yet, but they are no longer sliding either. For now, they have dug in and are waiting.

The U.S. Dollar Index (DXY), the main gauge of the dollar’s strength against a basket of six major currencies, also held steady. Just a day earlier, it had climbed to a two-month high. Two months may not sound like much, but in the currency market, that is a meaningful stretch. The dollar has not been this strong since the spring, when markets were gripped by another round of anxiety over the Federal Reserve and inflation.

Now comes a pause. Traders are taking a breath, reassessing positions, and scanning economic calendars for the next major catalyst. And there are plenty of them ahead. Any one of them could tip the balance further in favor of the dollar—or spark a recovery in battered Asian currencies.

So what happened over the past few days? Why has the dollar suddenly become so strong? And why do Asian currencies remain under pressure despite this temporary stabilization?

There are several reasons, all tightly intertwined in a knot that analysts around the world are trying to untangle.

The Middle East: A Ceasefire That Solves Little

The first and most obvious driver of dollar strength is geopolitics.

The Middle East has been on edge all week. Iran and the United States exchanged airstrikes. Missiles were launched toward Kuwait and Bahrain. U.S. forces struck Iran’s Qeshm Island—the strategic outpost guarding the Strait of Hormuz, through which roughly one-fifth of the world’s oil supply...