NEW YORK – The US dollar experienced a significant boost at the start of the week, driven by renewed speculation regarding potential trade agreements. This development led to an unexpected surge in Taiwan’s currency, causing ripples across global foreign exchange markets.
The greenback has been under continuous pressure, mainly due to President Donald Trump’s economic policies, which have cast doubt on the attractiveness of American assets. Consequently, the US dollar weakened further on May 5, losing ground against most major currencies.
By 1:20 PM in New York, a Bloomberg index tracking the dollar showed a decline of approximately 0.2 per cent. This downturn highlighted growing concerns among investors about the future trajectory of the US economy amid evolving trade discussions.
Market analysts noted that the currency movements underscored the fragile sentiment surrounding the US dollar in international markets. As trade negotiations continue to unfold, traders remain cautious, closely monitoring developments for any signs of lasting impact on currency valuations.
The Taiwanese dollar surged significantly, marking its most significant intraday jump in over 30 years. This made it the leading performer among 16 major currencies tracked by Bloomberg. Meanwhile, the yen experienced a rally, appreciating by approximately 0.6%, which placed it at the forefront of gains within the Group of 10 nations. The euro also showed strength, surpassing the US$1.13 threshold.
In contrast, China’s financial markets were inactive due to a public holiday, creating a quiet backdrop for regional trading activities.
Since taking office in January, Mr. Trump’s assertive trade rhetoric has caused turbulence in macroeconomic markets. His approach has undermined the US dollar’s status as a haven during periods of uncertainty. As a result, investors have been shifting their focus away from American assets, seeking opportunities elsewhere.
In recent days, investors have been keenly focused on the potential trade and tariff deals that the Trump administration might negotiate with key international partners. There is particular interest in understanding the scope and nature of these agreements and how they might impact global markets. A significant point of discussion is whether these negotiations will include a coordinated strategy among global policymakers to weaken the U.S. dollar intentionally.
Such a move could have far-reaching implications for international trade and currency markets. A weaker dollar might boost U.S. exports by making them cheaper on the global market, but could also lead to increased volatility in foreign exchange rates.
Mr. Arindam Sandilya, a Singapore-based global forex strategist at JPMorgan Chase & Co., shared his insights on this evolving situation during a podcast. He noted that there is a palpable sense of uncertainty and caution in Asia regarding these developments. “We’re all feeling a little shell-shocked in this part of the world,” he remarked, emphasising the apprehension among investors and policymakers in the region.
The recent fluctuations in Asian currencies reflect this unease, as markets adjust to the potential economic shifts. The outcomes of these trade negotiations could significantly influence global financial stability and investor confidence in the coming months.
“The substantial and coordinated appreciation of currencies across the region is sparking discussions about the possibility of a currency accord among central banks,” he remarked. This speculation arises as financial leaders contemplate strategies to manage the rapidly shifting exchange rates.
Despite a slowdown in selling during May, the Bloomberg Dollar Spot Index remains significantly impacted. It has experienced a decline of nearly 7 per cent in 2025, marking the most significant drop since the index was established two decades ago. This notable decrease underscores the challenges faced by the U.S. dollar in maintaining its value against other major currencies.
In parallel, traders in the speculative derivatives market are exhibiting unprecedented bearish sentiments towards the dollar. According to the most recent data from the Commodity Futures Trading Commission, this level of pessimism hasn’t been observed since September. Such sentiment reflects growing concerns over the dollar’s future performance amid global economic uncertainties.
The combination of these factors is contributing to heightened volatility in currency markets. Central banks are under increasing pressure to respond, potentially leading to coordinated efforts to stabilise the situation. As discussions continue, market participants are closely watching for any signs of an official agreement that could influence currency dynamics worldwide. Since May 2, the Taiwan dollar has experienced a significant surge. This rise is partly fueled by speculation, though unconfirmed, that a potential trade deal with the United States might include adjustments to exchange rates. This situation exemplifies the complex challenges global policymakers face as investors increasingly withdraw from American assets due to uncertainties in trade policies.
Brad Bechtel, the global head of forex at Jefferies, has commented on the situation. He suggests that the rally in Taiwan’s currency could have broader implications, potentially extending to other developing nations.
Bechtel also speculates about a possible currency agreement involving the US and China, or perhaps the entire region. Such an agreement could strengthen all Asian currencies. This scenario underscores the interconnectedness of global markets and the far-reaching effects of policy decisions. On May 5, in California, US Treasury Secretary Scott Bessent addressed concerns about the impact of the Trump administration’s economic policies on investor behaviour. Speaking at the Milken Institute Global Conference, Bessent dismissed claims that investors are divesting from American assets. He emphasised the United States’ status as the “premier destination” for global capital, underscoring its enduring appeal to international investors.\
Bessent also touched upon the complex nature of trade negotiations under the current administration. He acknowledged that securing better terms of trade can be challenging and sometimes uncomfortable. Despite these challenges, he expressed optimism about the future of America’s trading relationships.
According to Bessent, the long-term outcome will be stronger trading partnerships. He assured that these efforts would not undermine the existing security and values-based ties with international partners. His remarks aimed to reassure both domestic and global audiences about the stability and resilience of US economic strategies.
Central banks and financial officials are actively addressing the rapid appreciation of local currencies. This surge in currency value has prompted swift responses to stabilise markets and mitigate potential economic disruptions.
The situation has become urgent in Taiwan. On May 5, the governor of the central bank held an emergency briefing. He highlighted that market commentary had sparked “excessive” buying of the Taiwan dollar by exporters and foreign investors. This sudden influx is causing concern among financial authorities.
Simultaneously, Taiwan’s markets regulator is taking action. They have convened with life insurers who hold US dollar-based bonds. These insurers are particularly vulnerable to the strengthening domestic currency, which could impact their investments.
On a broader scale, economic indicators are influencing currency dynamics. Ms. Skylar Montgomery Koning, a currency analyst at Barclays in New York, noted that lower tariff rates and progress on trade deals are significant factors. These developments alleviate fears about disruptions to the US economy. Moreover, they could bolster Asian economies and boost their previously lagging currencies.
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