[SINGAPORE] Major Asian currencies could be in for more gains through year-end, as the US dollar, hammered by tariff tensions, cloudy macro prospects and shifting bets on the monetary policy path, slumped 10.7 per cent in the first half of 2025. This is its worst half-year performance since 1973.
“The US dollar’s underperformance has been driven by a confluence of factors, ranging from US policy unpredictability related to (US President Donald) Trump tariffs, the erosion of US exceptionalism and increasing concerns over US fiscal health,” said OCBC foreign exchange (FX) strategist Christopher Wong.
In the early 70s, the Dollar Index was under pressure as an FX regime change saw economic heavyweights in the likes of Germany, the UK and Japan abandoning a fixed exchange rate based on gold for a free-floating one against the greenback, explained Wong.
This took place against the backdrop of an ending Vietnam War, which took a toll on US finances, contributing to inflationary pressures and budget deficits – all of which weakened its currency, he continued.
The greenback’s beating has seen major East Asian and South-east Asian currency tickers on an appreciation trend for much of the year so far, with analysts concurring that there is room for further appreciation in H2 2025.
Strongest and weakest of them all
Notable winners include the Taiwan dollar (+10.9 per cent); the won and the yen (+8.1 per cent); the Singapore dollar (6.4 per cent); and the ringgit (5.9 per cent).
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Goldman Sachs analysts Danny Suwanapruti and Santanu Sengupta noted that within Asian currencies, the house remains “most constructive” on the won.
“The Korean won has been the second-best performing Emerging Asia currency (versus the US dollar on a spot basis) year-to-date, and we expect this trend to persist,” the duo wrote in a Monday (Jun 30) report.
The pair highlighted several domestic developments, such as the new Korean government’s supplementary budget and pro-equity stance via potential changes to corporate governance rules, which they described as “positive” for its stock market index.
Foreign flows also turned positive in May from net outflows earlier in the year, they said.
Additionally, the won has the highest beta to the US dollar and Chinese renminbi; and could potentially benefit from Taiwanese life insurance proxy hedging, noted the report.
Though the Taiwan dollar charted some of the strongest gains, the Goldman Sachs analysts contended that earlier analysis revealed how Taiwan has been home to the largest accumulation of US dollar deposits in the region (excluding China and financial centres) over the past couple of years.
“This poses further downside risk to the USD/TWD, as exporters are likely to increase their FX conversion ratios, now that the US dollar trend has turned lower,” said the pair.
Within South-east Asia, MUFG Bank’s senior currency analyst Lloyd Chan flagged the baht as a gainer in the wake of the Israel-Iran ceasefire, but maintained that it is vulnerable to an escalating domestic political crisis amid increasing calls for the Thai prime minister’s resignation.
“So far, markets have not priced in significant increase in country risk premium,” he wrote in a Monday report.
“But if protests escalate to levels seen during the 2013-2014 political crisis – which culminated in a military coup in May 2014 – there could be serious implications for tourism, the passage of the FY2026 budget bill and economic growth, all of which would weigh on the outlook for the baht.”
On the Singapore dollar, OCBC’s Wong and head of FX and rates strategy Frances Cheung see “limited room” for its appreciation on a trade-weighted basis and expect trade peers such as the yen and won to “play catch-up on gains”.
In an H2 FX outlook posted on Jun 26, the pair expect a mild degree of USD/SGD downside for the remainder of the year, noting that this is premised on tariff de-escalation momentum and the softer US dollar trend continuing to play out.
