The Korean won and Japanese yen rose sharply, and the US dollar exchange rate depreciated

The US trade negotiations are disturbing the Asian foreign exchange market. On the New York foreign exchange market on May 14, the Korean won-dollar exchange rate once rose by 2% from the previous day. The reason behind this is that the market has expectations that the United States requires South Korea to push the dollar to depreciate. This situation also affected the yen-dollar exchange rate, which once reached the range of 145.70 yen per dollar, and the yen appreciated by more than 1 yen and the dollar depreciated compared with the previous day.

The Korean won once rose to the range of 1380 won per dollar in the morning trading on the 14th, an increase of 2% from the previous day. The factor that caused this fluctuation was that Bloomberg reported that during the Asian Development Bank (ADB) annual meeting held in Milan, Italy from May 4 to 7, the United States and South Korea held a trade meeting, and the exchange rate issue was listed as an agenda.

It is said that US President Trump believes that the depreciation of the US dollar will help improve the competitiveness of the US manufacturing industry. Stephen Miran, chairman of the White House Council of Economic Advisers (CEA), also proposed a framework to guide the depreciation of the US dollar by selling foreign exchange reserves by major countries in a report written during his tenure at a hedge fund.

In his speech in April, Miran denied that “many people speculate that (the US government) is secretly implementing policies according to the contents of the document, but there is no factual basis for this.” Bloomberg also quoted relevant people as saying that the US government did not seek to depreciate the US dollar, and the trend of US dollar depreciation and won appreciation had temporarily come to an end.

But there is still an expectation in the market that the United States will put pressure on Asian countries such as Asia with trade deficits to appreciate their currencies.

This is not the first time that news related to the Trump administration’s trade negotiations has disturbed the Asian foreign exchange market. The New Taiwan dollar appreciated by about 10% against the US dollar on May 2 and May 5. Regarding the background reasons for the sharp appreciation of the New Taiwan dollar, the market speculates that the United States has exerted pressure on the New Taiwan dollar to appreciate in trade negotiations with Taiwan.

Asian investors’ positions tend to favor the US dollar, which also contributes to market volatility. Affected by the US economic growth, many Asian investors have increased their investments in the US without currency hedging. The Financial Times reported that Taiwan’s life insurance companies have invested $700 billion in US assets in the past 10 years.

Some people believe that as the US and various countries officially started trade negotiations in April, the US may induce the expectation of dollar depreciation. Taiwan’s life insurance companies and other institutions have hurried to take currency hedging measures to cope with the appreciation of the New Taiwan dollar. “Although on a smaller scale, similar trigger transactions have also occurred in South Korea,” said the chief investment officer (CIO) of a macro hedge fund headquartered in New York.

Both South Korea and Taiwan are included in the “watch list” designated in the US Treasury’s foreign exchange report. Japan is also on the list, and the market generally believes that the United States may ask these countries and regions to appreciate their currencies.

Japanese Finance Minister Katsunobu Kato revealed at a press conference after the cabinet meeting on May 13 that he would discuss exchange rate issues with US Treasury Secretary Benson at the G7 Finance Ministers and Central Bank Governors Meeting to be held in Canada from the 20th, which also intensified market speculation.

The market generally believes that exchange rate volatility will increase in the short term. Marc Chandler of Bannockburn Global Forex, a U.S. financial trading firm, said: “The market is always looking for a story. From the perspective of purchasing power parity, the U.S. dollar is seriously overvalued and there is a high possibility that Asian currencies will appreciate significantly again.”