Economy 2 MIN READ

BUZZ-COMMENT-Traders should expect FX interventions and their consequences

May 5, 2022By Reuters

Currency traders should anticipate a growing number of interventions to curtail dollar strength against emerging market currencies and also the consequences of those which will likely support dollar against major currencies. nL2N2WX0IG

The dollar has surged putting pressure on several Asian currencies where some central banks have responded by talking about the likelihood of intervention. Inevitably they will sell.

South Korea’s central Bank and Hong Kong’s monetary authority are likely to be among the first to intervene but it’s unlikely they’ll be the last.

USD/HKD is pushing the upside limit of its trading bands, and USD/KRW has soared in part due to South Korea’s dependence on energy imports.

India, China, the Philippines, Singapore, Thailand and Taiwan also import energy, and with prices surging again, pressure on their currencies will mount. nL2N2WW0H8

Interventions that emerge to counter a dollar rally are usually rebalanced as most Asia nations are loathe to see FX reserves depleted. That means dollars are bought back, usually versus liquid majors which predominantly means euro, but also yen and sterling.

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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)


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