[SINGAPORE] Major Asian currencies could be in for more gains until the end of the year, with the US dollar – hammered by tariff tensions, cloudy macro prospects and shifting bets on the monetary policy path – having slumped 10.7 per cent in the first half of 2025. This is its worst half-year performance since 1973.
OCBC foreign exchange (FX) strategist Christopher Wong said: “The US dollar’s underperformance has been driven by a confluence of factors, ranging from the unpredictability of US policy related to (US President Donald) Trump’s tariffs, the erosion of US exceptionalism and increasing concerns over US fiscal health.”
In the early 1970s, the greenback was under pressure as an FX regime change saw economic heavyweights such as Germany, the UK and Japan abandoning a fixed exchange rate based on gold for a free-floating one against the greenback, said Wong.
This took place against the backdrop of an ending Vietnam War, which took a toll on US finances, contributing to inflationary pressures and budget deficits – all of which weakened its currency, he added.
The greenback’s beating has sent major East Asian and South-east Asian currencies ticking up for much of the year so far, with analysts concurring on headroom for further appreciation in H2 2025.
Top pick: Korean won
Analysts The Business Times spoke with broadly flagged the South Korean won as potentially the strongest contender in the region.
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Goldman Sachs analysts Danny Suwanapruti and Santanu Sengupta noted that among Asian currencies, the house remains “most constructive” on the won.
“The Korean won has been the second-best performing Emerging Asia currency (versus the US dollar on a spot basis) in the year to date, and we expect this trend to persist,” the duo wrote in a Monday (Jun 30) report.
The pair highlighted several domestic developments, such as the new South Korean government’s supplementary budget and pro-equity stance via potential changes to corporate governance rules, which they described as “positive” for its stock market index.
Foreign flows also turned positive in May from net outflows earlier in the year, they said.
The won also has the highest beta to the US dollar and Chinese renminbi, and could benefit from Taiwanese life insurance proxy hedging, noted the report.
Strong spurt but slowing: Taiwanese dollar
Though the Taiwanese dollar charted some of the strongest gains, the Goldman Sachs analysts contended that earlier analysis noted that Taiwan has been home to the largest accumulation of US dollar deposits in the region (excluding China and financial centres) over the past couple of years.
“This poses further downside risk to the USD/TWD, as exporters are likely to increase their FX conversion ratios, now that the US dollar trend has turned lower,” said the pair.
Modest upside: Malaysian ringgit, Indonesian rupiah
Both these South-east Asian currencies notched substantial gains against the US dollar, and are expected to maintain their strengthening trajectories into the year.
Parisha Saimbi, a foreign exchange and markets strategist for Asian emerging markets at BNP Paribas, said: “There are high foreign currency deposits in these two countries, so there is a risk that corporates in the country could be hedging the dollar risk on those holdings, or be looking to repatriate these currencies by converting them back to the local currency.”
Other factors include growing portfolio inflows into both economies, particularly for the rupiah as a higher yielder within the region, as well as central bank policies that are turning more supportive, she added in a call with BT.
Little headroom: Singapore dollar
On the Singapore dollar, OCBC’s Wong and head of FX and rates strategy Frances Cheung see “limited room” for its appreciation on a trade-weighted basis and expect trade peers such as the yen and won to “play catch-up on gains”.
In an H2 FX outlook posted on Jun 26, the pair expect a mild degree of USD/SGD downside for the remainder of the year, noting that this is premised on tariff de-escalation momentum and the softer US dollar trend continuing to play out.
Domestic troubles abound: Thai baht
Within South-east Asia, MUFG Bank’s senior currency analyst Lloyd Chan flagged the baht as a gainer in the wake of the Israel-Iran ceasefire, but maintained that it is vulnerable to an escalating domestic political crisis amid calls for the Thai prime minister’s resignation.
“So far, markets have not priced in significant increase in country risk premium,” he wrote in a Monday report.
“But if protests escalate to levels seen during the 2013-2014 political crisis – which culminated in a military coup in May 2014 – there could be serious implications for tourism, the passage of the FY2026 Budget bill and economic growth, all of which would weigh on the outlook for the baht.”
