Dollar dips as TWD rally fuels revaluation bets before fed
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The U.S. dollar weakened on Monday as an unexpected surge in the Taiwan dollar triggered speculation that some Asian economies may be allowing their currencies to appreciate in a strategic bid to secure trade concessions from Washington. The Taiwan dollar climbed over 3% to 29.654 per U.S. dollar, extending a record 4.5% rally from Friday and reaching its strongest level in nearly three years.
Although Taiwan’s central bank denied any U.S. pressure, market participants perceived the appreciation as deliberate. Local financial sources suggested inflows of speculative capital—so-called “hot money”—were being tolerated or even encouraged by the central bank in response to quiet but coordinated political pressure. The rally in the Taiwan dollar is being viewed by many as a proxy for broader Asian FX revaluation amid the fragile backdrop of U.S.–China trade friction.
China’s offshore yuan followed suit, reaching a near six-month high at 7.1879, as speculation mounted that Beijing could allow further appreciation in exchange for progress in stalled trade talks. The Chinese Commerce Ministry has acknowledged ongoing internal discussions on a potential response to U.S. overtures, though both sides remain far from an agreement on core issues, including tariffs as high as 145% imposed by President Trump in April.
Despite the geopolitical recalibration, the dollar’s muted response to Friday’s strong U.S. jobs data has caught investor attention. A solid payrolls print and easing fears of an immediate economic downturn provided only a temporary lift to the greenback. With holidays in China and Japan thinning liquidity in Asia, the dollar struggled to hold gains. The euro firmed to $1.1343, while the dollar index dipped 0.22% to 99.635. Against the yen, the dollar retreated to 144.03, down from Friday’s peak of 145.91, aided by falling oil prices that benefit Japan’s import-heavy energy profile.
The Federal Reserve, which meets this week, is expected to leave rates unchanged. However, a shift in expectations is emerging. Market pricing now reflects just a 37% probability of a cut in June, down sharply from 64% one month ago. Goldman Sachs and Barclays have both moved their baseline forecast for a rate cut to July, citing persistent core inflation and a still-resilient labor market. Nevertheless, recent volatility in policy messaging—paired with open pressure from the White House—has led to growing concerns about the Fed’s perceived independence.
President Trump reiterated on Sunday that he has no intention of removing Jerome Powell but again called for rate cuts, labeling the Fed Chair a “stiff.” These remarks, combined with abrupt policy shifts—such as new tariffs on non-U.S. media content—have contributed to what many analysts are calling a crisis of confidence in U.S. policy direction. This erosion in credibility is increasingly being reflected in speculative positioning, with short dollar bets rising.
Strategists such as Sally Auld at NAB believe the dollar could be entering a longer-term downtrend. She argues that as the narrative of U.S. economic exceptionalism fades, capital will increasingly rotate toward alternative markets. NAB’s year-end forecasts now target EUR/USD at 1.23, USD/JPY at 125, and AUD/USD at 0.70.
The immediate test for the dollar comes with Monday’s ISM services index release. A weak reading could revive concerns of a broader slowdown and potentially re-anchor rate cut expectations for June. Meanwhile, attention in Europe turns to Thursday’s Bank of England meeting, where a 25 basis point rate cut is widely expected. Forward guidance will be key, as markets assess the likelihood of back-to-back easing and the potential for the bank rate to move toward 3.50% by year-end.
Elsewhere, policy meetings in Norway and Sweden are expected to result in no change, while in Australia, the re-election of Prime Minister Anthony Albanese helped lift the Australian dollar to $0.6472—its highest in five months—supported by broad risk-on sentiment following the U.S. payrolls release.
Although Taiwan’s central bank denied any U.S. pressure, market participants perceived the appreciation as deliberate. Local financial sources suggested inflows of speculative capital—so-called “hot money”—were being tolerated or even encouraged by the central bank in response to quiet but coordinated political pressure. The rally in the Taiwan dollar is being viewed by many as a proxy for broader Asian FX revaluation amid the fragile backdrop of U.S.–China trade friction.
China’s offshore yuan followed suit, reaching a near six-month high at 7.1879, as speculation mounted that Beijing could allow further appreciation in exchange for progress in stalled trade talks. The Chinese Commerce Ministry has acknowledged ongoing internal discussions on a potential response to U.S. overtures, though both sides remain far from an agreement on core issues, including tariffs as high as 145% imposed by President Trump in April.
Despite the geopolitical recalibration, the dollar’s muted response to Friday’s strong U.S. jobs data has caught investor attention. A solid payrolls print and easing fears of an immediate economic downturn provided only a temporary lift to the greenback. With holidays in China and Japan thinning liquidity in Asia, the dollar struggled to hold gains. The euro firmed to $1.1343, while the dollar index dipped 0.22% to 99.635. Against the yen, the dollar retreated to 144.03, down from Friday’s peak of 145.91, aided by falling oil prices that benefit Japan’s import-heavy energy profile.
The Federal Reserve, which meets this week, is expected to leave rates unchanged. However, a shift in expectations is emerging. Market pricing now reflects just a 37% probability of a cut in June, down sharply from 64% one month ago. Goldman Sachs and Barclays have both moved their baseline forecast for a rate cut to July, citing persistent core inflation and a still-resilient labor market. Nevertheless, recent volatility in policy messaging—paired with open pressure from the White House—has led to growing concerns about the Fed’s perceived independence.
President Trump reiterated on Sunday that he has no intention of removing Jerome Powell but again called for rate cuts, labeling the Fed Chair a “stiff.” These remarks, combined with abrupt policy shifts—such as new tariffs on non-U.S. media content—have contributed to what many analysts are calling a crisis of confidence in U.S. policy direction. This erosion in credibility is increasingly being reflected in speculative positioning, with short dollar bets rising.
Strategists such as Sally Auld at NAB believe the dollar could be entering a longer-term downtrend. She argues that as the narrative of U.S. economic exceptionalism fades, capital will increasingly rotate toward alternative markets. NAB’s year-end forecasts now target EUR/USD at 1.23, USD/JPY at 125, and AUD/USD at 0.70.
The immediate test for the dollar comes with Monday’s ISM services index release. A weak reading could revive concerns of a broader slowdown and potentially re-anchor rate cut expectations for June. Meanwhile, attention in Europe turns to Thursday’s Bank of England meeting, where a 25 basis point rate cut is widely expected. Forward guidance will be key, as markets assess the likelihood of back-to-back easing and the potential for the bank rate to move toward 3.50% by year-end.
Elsewhere, policy meetings in Norway and Sweden are expected to result in no change, while in Australia, the re-election of Prime Minister Anthony Albanese helped lift the Australian dollar to $0.6472—its highest in five months—supported by broad risk-on sentiment following the U.S. payrolls release.