The dollar (DX=F) gained slightly due to positive economic data from the US, which helped temper the considerable appreciation of Asian currencies driven by optimism surrounding potential trade agreements with the US.
A measure of the dollar increased by 0.2% after reports indicated that activity among US service providers picked up in April. The Taiwanese dollar fell by 0.1% after experiencing its largest rise since the 1980s on Monday, while the yen saw a minor decline. Additionally, oil prices recovered from their lowest close in four years, and gold surged by 0.8% due to demand from China.
Futures for the S&P 500 dropped by 0.4%, following a halt in the index’s longest rally in about two decades. Futures for European stocks also indicated modest downturns, aligning with trends in Asian markets, while there was no cash trading in Treasuries as Japan was closed for a holiday.
Since President Donald Trump took office in January, his assertive trade rhetoric has unsettled markets, diminishing the dollar’s conventional role as a safe haven during times of stress. This has encouraged investors to diversify away from US assets. Recently, increased expectations for trade agreements to reduce US tariffs have led to a spike in various Asian currencies, prompting central banks in Taiwan and Hong Kong to intervene in the market.
“It’s a brief moment of calm before another wave in the trade turmoil,” stated Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney. “Forex markets, particularly in Asia, are taking a pause as we await new trade information from the US.”
Following a slump in the previous month, the services sector in the US showed signs of resilience with an acceleration in April. This suggests stability in the services sector as manufacturing faces challenges due to increased US duties. Treasury yields experienced a rise for the third consecutive session after a stronger-than-anticipated report from the Institute for Supply Management regarding services.
The differential between the spot rate for the Taiwan dollar and one-year non-deliverable forwards on the Taiwan dollar-US dollar pair expanded to about 3,000 pips, marking the widest margin in at least two decades. This significant inversion indicates sustained selling pressure on the US currency. The increase in the Taiwan dollar has been driven by exporters who are eager to exchange their US dollar holdings for the local currency.
