Central Banks in Asia are becoming wary of currency intervention

The central banks of India and Malaysia have reduced the size of some derivatives positions they use to weaken their currencies. Taiwan has allowed its currency to surge against the dollar in recent weeks and dropped hints it would be comfortable with more if the moves were “orderly.” South Korea’s giant national pension fund has ended its five-month support of the won.

A major reason for these moves is a simple change in the market landscape: The dollar has tumbled more than 7 per cent this year, easing pressure on emerging market currencies. But strategists and investors also point to the risk of a backlash from US President Donald Trump, amid rising speculation that currency policies will be on the table during a series of ongoing — and high stakes — trade negotiations.

“The threat of being labeled a currency manipulator by the US, especially during this period of tariff negotiations, will act as a deterrent to further heavy FX intervention in local markets,” said Rajeev De Mello, a Geneva-based portfolio manager at GAMA Asset Management SA.

The shifting approach of Asia’s central banks to defending their currencies underscores the sweeping changes in global markets since the election of Trump, whose on again-off again tariff threats have roiled asset prices and raised once unthinkable questions about the dollar’s place in the global trading system.

Korea confirmed last month that it had held currency talks with the US, sending the won higher amid talk that Trump wants a weaker dollar. But White House chief economist Stephen Miran has denied the idea Washington is working on secret deals to depreciate the greenback, saying the US continues to have a strong dollar policy.

The greenback has plummeted against major currencies this year, suffering drops of around 10 per cent against the euro and the Swiss franc.

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Traders are now trying to game out which currencies have the most to gain from a period of reduced intervention. The Korean won and the Malaysian ringgit are two obvious candidates, since both countries have large trade surpluses, said Gautam Kalani, portfolio manager for BlueBay fixed income, emerging markets, at RBC Global Asset Management. Reduced intervention will speed up the appreciation of these currencies, he said.

The Taiwan dollar is also being hotly tipped by strategists. Although Taiwan’s central bank is still likely to use intervention to keep volatility in check, most market participants think it will allow the local currency to appreciate further even after hitting multi-year highs.

That suggests room to build on what has already been a widespread rally against the dollar: Taiwan’s currency has surged 10 per cent against the greenback this year, making it the region’s best performer. The Korean won is up around 6 per cent, while the Malaysian ringgit is more than 4 per cent higher. 

The retreat from intervention isn’t unanimous across Asia. Bank Indonesia intervened on Monday as the rupiah fell to a one-month low, after Middle East tensions hit emerging market currencies. The Philippines’ central bank has sent mixed messages, calling intervention futile but also saying it might have to do so “more seriously” if a current slide in the peso continues. The People’s Bank of China continues to keep its currency on a tight leash. 

But for some of emerging Asia’s most interventionist central banks, the calculus appears to have shifted in favor of a less hands-on approach. 

The US Treasury refrained from labeling any country a currency manipulator in its latest foreign-exchange report, released in June. However, it said China, Japan, South Korea, Taiwan, Singapore and Vietnam all met two out of three of its criteria.

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Published on June 23, 2025