A recent Reuters poll has revealed that a notable shift in sentiment toward China’s yuan has taken place, with bearish bets reaching their highest level since mid-May. For the first time, analysts have turned short on the currency, a reflection of increasing concerns about the country’s economic performance. This shift comes as China’s economy lost momentum in July, with several key indicators showing weaker-than-expected growth. Retail sales, for instance, rose by only 3.7% year-on-year, which was significantly below the 5.9% growth that had been anticipated. Similarly, industrial output saw its weakest pace of growth since November 2024, expanding by only 5.7%. Furthermore, new home prices declined by 2.8% in July compared to the previous year, continuing a two-year stagnation, and fixed-asset investment increased by just 1.6% in the first seven months of 2025, falling short of forecasts for a 2.7% rise.
In other parts of Asia, the Reuters fortnightly poll of 11 respondents also captured shifts in market sentiment. Analysts have maintained a bearish outlook on the South Korean won, a view that has been held since early May. At the same time, short positions on the Singapore dollar were slightly reduced. The Indonesian rupiah, which had recently flipped bullish, has now seen a return to negative sentiment. Meanwhile, bearish bets on the Taiwan dollar were trimmed.
These changes in currency sentiment are being influenced by a number of factors. Indonesia’s central bank, for example, unexpectedly cut its benchmark 7-day reverse repurchase rate by 25 basis points, a decision that was made after the poll responses had been received. In India and Malaysia, analysts have pared back their bullish positions on the rupee and ringgit, respectively. A slight trimming of bearish bets was also seen for the Philippine peso, while bullish positions on the Thai baht were reduced. Analysts at ANZ have noted that India’s growth momentum is expected to slow down, with tepid household consumption and investment anticipated in the coming quarters. It was also mentioned that the country’s export competitiveness is facing headwinds from U.S. tariffs. This outlook has led to the belief that the Indian rupee is likely to trade with a depreciation bias in the near to medium term, underperforming against its Asian peers.
In a separate but related development, it was reported that China is considering the possibility of allowing yuan-backed stablecoins for the first time, a move aimed at boosting the global adoption of its currency. It is expected that the expansion of yuan usage and the potential for stablecoins in cross-border trade will be a topic of discussion at the Shanghai Cooperation Organisation Summit, which is scheduled to be held from August 31st to September 1st.
The overall sentiment toward emerging market currencies is being influenced by global monetary policy expectations, particularly concerning the U.S. Federal Reserve. A market strategist at Krung Thai Bank has suggested that if the Federal Reserve remains reluctant to deliver significant rate cuts, which is contingent on future employment and inflation data, a repricing of rate cut expectations could drive the U.S. dollar and Treasury yields higher. This, in turn, could create headwinds for emerging market currencies. Despite a recent strong sell-off, the U.S. dollar index, which measures the currency’s value against a basket of currencies, has started to edge higher this week. Money markets currently reflect a 93% chance of a 25-basis-point Fed rate cut in September. A senior forex strategist at Maybank Singapore has noted that after a strong sell-off in the U.S. dollar during the first half of 2025, currencies are now awaiting new macroeconomic cues from data, and a period of consolidation could be expected. It was also suggested that currencies like the South Korean won and Taiwan dollar, which had the largest gains in the first half of the year, have the most room to retrace. Furthermore, investor concerns about the independence of the Federal Reserve have been heightened by a recent attack from President Donald Trump, occurring just before a scheduled address by Fed Chair Jerome Powell. The Asian currency positioning poll, which provides a measure of market positions, has been a key tool in tracking these shifts in sentiment across the region’s currencies.
