USD Under Pressure: Global Currency Realignments Challenge Taiwan's Export Focus
What is the Implication of the Dollar's Decline Across Major Currencies?
Recent volatility in the New Taiwan Dollar (NTD) against the greenback has prompted Taiwan’s Central Bank to hold a snap press conference outside its regular schedule to warn against market speculation on a strong NTD. However, a broader analysis reveals that the NTD’s appreciation is only part of a significant global currency realignment driven by a weakening US dollar and fluctuating market confidence.
The NTD has risen 7.32% against the USD over the past week, and during the Asian session, the dollar slid a record 5.7% against the Taiwan dollar to 28.932 , adding to a 4.4% move on Friday, according to Reuters.
While Central Bank Governor Chin-long Yang has cautioned against excessive speculation and emphasized there is no pressure from the Trump Administration to drive up the NTD, it’s clear that the sharp appreciation was mainly caused by the market’s loss of confidence in the USD, because the NTD’s movement is not occurring in isolation.
Taiwan's Central Bank has moved to reassure markets, emphasizing that it does not manipulate the NTD and hinted that the local currency may have over-appreciated. Yang emphasized that the recent trade surplus with the U.S. is largely due to strong demand for Taiwan's ICT products. He also explicitly refuted rumors of a U.S. request for NTD appreciation or involvement in alleged agreements like the "Mar-a-Lago Accord," dismissing them as “market speculation”.
The Central Bank has also cautioned market participants against speculative behavior, urging businesses “not to listen to overly exaggerated or false analyses,” which could lead to “irrational expectations” and financial losses.
Exports contribute to 60% of Taiwan’s Gross Domestic Product (GDP), and the products sold overseas are mostly denominated in US dollars.
Taiwan's economic fundamentals are strong. According to Taiwan’s Directorate General of Budget, Accounting and Statistics (DGBAS), Taiwan’s preliminary figure for last year's (2024) economic growth rate was 4.59%. The estimated growth rate for the first quarter of this year (2025) is 5.37%, which is better than that of the United States, Mainland China, Singapore, and South Korea.
A Widespread Shift
Data indicates a broad depreciation of the USD against both major and emerging market currencies:
The Japanese yen has surged by over 10% against the USD since the beginning of 2025.
The euro has gained approximately 5% in the first quarter of 2025, reaching its highest level since late 2024, with expectations of further gains.
Several emerging market currencies have also recorded substantial gains against the USD year-to-date, including the Mexican peso (+5.5%), Canadian dollar (+4%), Polish zloty (+9%), and, ironically, Russian ruble (+22%).
Chinese onshore markets were closed but the yuan traded offshore hit its highest in almost six months at 7.1881 per dollar.
This widespread weakening of the USD suggests that factors beyond Taiwan's domestic economy are at play.
Meanwhile, according to Cathay Financial Holdings, several domestic factors are contributing to the NTD's rise:
Increased expectations of Federal Reserve interest rate cuts: Expectations of the US Federal Reserve lowering interest rates tend to weaken the USD, making the NTD more attractive to investors.
Pressure to reduce Taiwan's trade surplus with the U.S.: There may be perceived or actual pressure on the Taiwanese government to take measures that could appreciate the NTD, thereby reducing the trade surplus with the U.S.
Foreign capital inflows into the Taiwan stock market: Increased investment by foreign institutions in the Taiwanese stock market leads to greater demand for the NTD, driving up its value.
Herd behavior driven by excessive expectations: Market participants, anticipating further appreciation of the NTD, may engage in speculative buying, creating a self-fulfilling prophecy and further fueling the upward trend.
Trump's Trade Policies and Market Uncertainty
A key factor influencing the USD's trajectory appears to be market uncertainty surrounding U.S. trade and economic policies. The Central Bank's press release directly acknowledges the impact of President Trump's on-again, off-again tariff policies on market sentiment.
The press release notes that “financial markets [are] gradually correcting” the so-called “Trump trade” that emerged previously. The recent volatility is tied to President Trump’s announcement of a 90-day pause in imposing reciprocal tariffs, coupled with renewed trade negotiations with major trading partners. These policy shifts have contributed to increased volatility in the NTD/USD exchange rate.
This environment of policy unpredictability erodes market confidence in the USD, driving investors to seek alternative currencies and assets.
Some local analysts have likened the recent volatile trade to the New Taiwan dollar’s sharp appreciation—from NT$40 to NT$25 against the U.S. dollar—following the 1985 Plaza Accord, and warned that small and medium-sized exporters may be hardest hit by the dollar’s decline. Central Bank Governor Yang Chin-long dismissed the comparison, stating that the two events are entirely unrelated. Having said that, a weak dollar is not in the interest of American consumers. Viewed from the other side of the coin, the United States, which is very dependent on imports, is facing the impact of a sharply depreciated dollar combined with rising tariffs, and its situation is indeed very different from the 1980s.
While Taiwan’s Central Bank is right to be vigilant about potential short-term over-appreciation of the NTD, it is crucial to recognize that the currency's movement is part of a larger global trend. The weakening USD, driven by a complex interplay of factors including shifting trade policies and diminished market confidence, is a primary driver of the changes. Taiwan, like many other economies, is facing a test of resilience navigating these turbulent currency waters in an era of heightened global economic uncertainty.