Currency War in Asia
The dollar is continuing to fall against major currencies. And it shouldn’t stop anytime soon. The fear of a unilateral devaluation by the Trump administration of the greenback is prompting everyone to reduce their exposure to the USD. It's a good time to review your exchange rate hedging strategy, as all major institutional players are currently doing. A 2-3% drop in the dollar is manageable. A devaluation of 15% or even 20% is a different matter.
The macro point
The US dollar is faltering. But not against all currencies. In Asia, a currency war is raging. The dollar is the big winner. Last week, the Vietnamese dong plummeted to a historic low against the US dollar, which should compel authorities to intervene in the foreign exchange market. Most currencies in the region, notably the Indian rupee, face the same issue. What is happening in Asia shows that the dollar still plays its role as a safe haven against emerging currencies. However, it is challenged against major currencies like the euro, the pound sterling, or the Swiss franc. The Swiss currency has reached a high against the US dollar at 0.80 CHF for 1 USD. This complicates the task of the Swiss National Bank (SNB). The money market anticipates it will raise its key interest rate to 0% as of June. But it could go further and return to the negative rates that prevailed from 2014 to 2022. This is already factored in by the bond market since the yield on short-term Swiss sovereign bonds is again in negative territory. This is obviously an anomaly. It shows how unprecedented the current economic and financial context is. From a growth point of view, the strong franc is a new currency for the Confederation. Keep in mind that Swiss exporters face the "reciprocal" tariffs of 31% imposed by the Trump administration, which will inevitably erode their margins. Major institutional players (banks, insurance companies, hedge funds) continue to reduce their exposure to dollar assets. The latest report from the US stock market regulator, the CFTC, shows that the dollar index has never been sold so much since the Covid period of 2020. Typically, when there is excessive selling, a quick rebound occurs. We remain cautious. The context remains uncertain. In trading rooms, there is still talk of the possibility that the White House might want to devalue the US dollar this summer (major monetary changes have the bad habit of occurring during the summer period). It's hard to know if this is true. In any case, it prompts everyone to hedge positions held in dollars. Nothing should change for at least several months. If you are exposed to the US market, consider reviewing your hedging strategy. In the best case, if the dollar depreciates by 8-10%, it's still manageable (though painful). But imagine a unilateral devaluation of 15% or even 20%, as mentioned by some members of the Trump administration, this could seriously endanger your activity. The exchange rate risk on the dollar is, in our view, the main threat this year.
Technical point
On the foreign exchange market, the euro continued to strengthen against the Japanese yen after the Bank of Japan meeting. As expected, the latter maintained its key rate unchanged at 0.5%. Furthermore, it revised its GDP and inflation forecasts downward due to the trade war, which had a negative effect on the yen. It also fell against the dollar. On the EUR/USD side, there were profit-takings at the end of last week. But the underlying trend remains clearly bullish. The resistance at 1.1494 should be monitored to hope for a new bullish push. Finally, regarding Central and Eastern European currencies, it is likely that the Czech koruna will continue to rise against the euro (+1.11% since the beginning of the year). The Czech central bank is expected to lower its key rate by 25 basis points on May 7 but should adopt a hawkish tone, which tends to support the Czech currency.
The supports and resistances displayed below indicate the lows and highs within which the rates should evolve during the week. | Weekly Supports | | Weekly Resistances | |
|---|
| S2 | S1 | R1 | R2 |
| EUR/USD | 1.1129 | 1.1233 | 1.1494 | 1.1522 |
| EUR/GBP | 0.8324 | 0.8377 | 0.8611 | 0.8650 |
| EUR/CHF | 0.9190 | 0.9266 | 0.9390 | 0.9390 |
| EUR/CAD | 1.5490 | 1.5433 | 1.5700 | 1.5734 |
| EUR/JPY | 160.22 | 161.89 | 164.10 | 164.77 |
Announcements to follow
As is always the case in May, volumes will decrease on the FX. This was already the case in April, with many investors opting for caution. The two central bank meetings of the week should not lead to notable changes. The US Federal Reserve is in pause mode, waiting for more statistics to know if it should accelerate the rate cuts. Across the Channel, the Bank of England is expected to lower its key rate by 25 basis points – this has been integrated into the sterling rates for weeks. There will therefore be no surprise.
In another area, the conclave to elect a new pope begins this Wednesday.
Below you will find the publications and events that should have a major impact on the evolution of the currency rates.| Day | Time | Country | Indicator | What to expect? |
|---|
| 05/07/2025 | 20:00 | USA | Central bank meeting | No change in monetary policy |
| 05/08/2025 | 13:00 | UK | Central bank meeting | Rate cut by 25 basis points |
The information presented in this publication is provided solely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not be used as a basis or considered as a prompt to engage in any investment.