Dollar dominance is triggering intervention fears across markets

Investors are dusting off intervention playbooks once again as a resurgent dollar raises the spectre of fresh efforts from officials to protect their currencies.

Taiwan’s central bank issued a rare statement this week to calm investors after global funds slashed their holdings of the island’s stocks and the local currency swooned. A South Korean official told reporters Wednesday the won’s weakness is excessive, while China’s central bank ramped up support for its currency through its daily fixing. Speculation is growing that the yen will be next.


“More intervention across markets is a legitimate concern,” said Kyle Rodda, an analyst at in Melbourne. “Policymakers might have wiped their brows, thinking their job was done last year, but a stronger dollar means currency concern is creeping up again — and traders’ positions may compound the volatility.”

Bloomberg’s dollar gauge has jumped about 2% this year, with the currency strengthening against all of its major peers, as investors wound back bets on Federal Reserve interest-rate cuts. While the greenback’s advance hasn’t yet been as prolonged as last year, the recent spike higher is a reality check to those investors betting on dollar weakness and for the authorities hoping for a respite.

The risks are particularly evident in Asia, home to the world’s two worst-performing major currencies against the greenback. The yen has slumped more than 4% this year, triggering fears about imminent intervention as it nears the 150-per-dollar level. The won has slumped to the lowest since November, while Taiwan’s dollar has fallen about 1.5% this week alone.

“We expect the Bank of Korea and the People’s Bank of China to smooth market volatility,” said Lemon Zhang, a strategist at Barclays Bank Plc in Singapore. Korea’s central bank may act more aggressively, meaning dollar-won may end up trading in a wide range, she said.

Nations with weak current-account and fiscal deficits, such as India and Indonesia, may struggle to prop up their currencies should the dollar continue to strengthen, according to KB Kookmin Bank.


Those with more firepower, such as South Korea and Japan, are likely to be more proactive, said Moon Junghiu, an economist at the lender in Seoul. “In terms of volatility, the won has been the most dramatic lately,” making it one of the most vulnerable currencies to intervention, Moon said.

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