It was reported that investors began scaling back bearish bets on most Asian currencies following indications that U.S. President Donald Trump’s initial policies would emphasize negotiation rather than the immediate imposition of steep tariffs on trading partners. A Reuters poll conducted among 11 respondents revealed that short positions on the Chinese yuan, the Taiwanese dollar, and the Thai baht had decreased compared to two weeks prior. This shift in sentiment suggested growing optimism among market participants regarding a more measured approach from the Trump administration.
Notably, it was observed that short bets on the South Korean won, which had been the best-performing Asian currency in January, had also declined. This currency’s strong performance was seen as reflective of broader investor confidence, spurred by the expectation that abrupt tariff hikes would not materialize in the near term.
Many investors had anticipated that tariffs would be among the initial executive orders signed by Trump upon assuming office. However, the absence of such aggressive measures weakened the U.S. dollar and improved risk sentiment toward Asian currencies. It was later reported that Trump’s administration was in discussions about imposing a 10% tariff on goods imported from China and additional levies of around 25% on imports from Mexico and Canada, with implementation expected from February 1.
Market analysts suggested that the prospect of delayed and less severe tariff measures provided temporary relief to Asian foreign exchange markets. Poon Panichpibool, a markets strategist at Krung Thai Bank, stated that as long as market participants believed the Trump administration would adopt a gradual approach to tariff implementation, Asian currencies would likely remain supported. A weaker U.S. dollar and muted movements in the 10-year U.S. Treasury yield were also cited as contributing factors to this sentiment.
Short positions on the Singapore dollar were reported to have eased as well. The Monetary Authority of Singapore (MAS) was noted to have room to adjust its policy settings due to lower inflation and higher growth. However, analysts appeared divided on whether the central bank would take immediate action during its policy review or delay changes to assess the impact of Trump’s policies.
In contrast to the general trend, short bets on the Indian rupee were reported to have risen to their highest levels since mid-July 2022. The rupee had depreciated by approximately 3% since Trump’s election victory, making it the second-worst performer among regional peers in January. Analysts from Barclays noted that several factors were contributing to the rupee’s weakness, including its overvaluation, the Reserve Bank of India’s (RBI) growing forward book, and the broad strength of the U.S. dollar. Additionally, foreign outflows from India’s equity markets and declining foreign exchange reserves were identified as factors exerting downward pressure on the currency.
Bearish sentiment was also observed to have increased for the Indonesian rupiah, with short positions reaching their highest levels since November 2022. This development followed an unexpected rate cut by the Bank of Indonesia, which surprised markets by lowering interest rates in an effort to stimulate economic growth.
The shifting investor sentiment toward Asian currencies highlighted the broader impact of geopolitical developments and policy uncertainty. While some currencies benefited from reduced bearish positions due to expectations of a measured approach from the U.S. administration, others faced renewed pressure due to domestic and external economic challenges.
Analysts suggested that continued monitoring of U.S. trade policies and their potential impact on global markets would be crucial in shaping future investment decisions. The interplay between domestic monetary policies in Asia and evolving geopolitical risks was expected to remain a central focus for investors in the months ahead.
