【MACRO Insight】 Pressure on Asian currencies and volatility in the U.S. bond market , waves in a str

Asian currencies have generally fallen to their lowest point in 20 years recently, mainly affected by the strong growth of the US dollar and the vow of US President-elect Trump to raise tariffs. The Bloomberg Asian Currency Index fell to 89.0409 on Monday, the lowest level since 2006. Federal Reserve officials are cautious about the path of interest rates, and investors are worried that Trump's tariff policy may lead to inflationary pressures. These factors have combined to suppress Asian currencies from the broad rise of the US dollar .

The dollar will continue to rise across the board against Asian currencies, but some pairs will rise more sharply. He pointed out that if U.S. trade protectionism becomes a reality, it will be a huge game changer. Asian central banks may respond to such protectionism by allowing their currencies to depreciate in a controlled manner.

In an effort to protect its currency, the Philippine central bank increased its support for currency markets last month, while the Indonesian central bank vowed to "boldly" protect the rupiah . On Monday, the Indian rupee fell below 85.8075 per dollar, hitting an all-time low. Among the Group of Ten (G10) currencies, the yen led the decline against the dollar, while the Canadian dollar was boosted by a report in the Globe and Mail that Trudeau is likely to announce his resignation as leader of the Liberal Party this week .

Spot gold turned higher during the day, once approaching the $2,650 mark. Non-US currencies also collectively counterattacked, with the pound against the US dollar, the euro against the US dollar, the New Zealand dollar against the US dollar, and the Australian dollar against the US dollar rising by more than 1%, and the US dollar against the Japanese yen erasing its gains during the day. The offshore renminbi continued to strengthen against the US dollar, rising above the 7.33 mark, and rising nearly 300 points during the day .

The U.S. government is set to issue $119 billion in new bonds this week, and markets are uneasy about it. On Monday, the U.S. will sell $58 billion in three-year Treasury notes, and will auction 10-year and 30-year bonds on Tuesday and Wednesday, respectively. Due to the state funeral of former U.S. President Carter on Thursday, the auction days of this round of U.S. Treasury bonds were moved up a day. The adjustment hit longer-term U.S. bonds the hardest, with the benchmark 10-year Treasury yield rising to more than 4.6%, about a percentage point higher than the level when the Federal Reserve first began to ease monetary policy in September. The yield on the 30-year Treasury bond rose to 4.85%, the highest level since the end of 2023.

Jack McIntyre, portfolio manager at Brandywine Global Investment Management, suggested that it is more prudent to hold short-term U.S. Treasuries at present because the economy is still growing and U.S. Treasury yields have risen. Futures traders expect the Federal Reserve to keep interest rates unchanged until June and only cut the benchmark rate by 50 basis points in 2025. If Trump fulfills his policy commitments, U.S. Treasury yields may rise, but the range is limited and is not expected to exceed 5% .

Since the Fed began cutting its benchmark rate in September, "labor market resiliency has increased, while inflation has been more stubborn than I expected at the time," Cook said in a speech at the University of Michigan Law School. "So I think we can be more cautious in making further rate cuts." The Fed cut its policy rate by a full percentage point in its last three meetings through 2024, but markets expect the Fed to keep its policy rate in the current range of 4.25% to 4.5% at its next meeting on January 28-29 .

On Friday, the Labor Department will release its latest nonfarm payrolls report, which is expected to show 160,000 new jobs in December, down slightly from the 227,000 jobs added in the previous month. "The weak data will rekindle discussions about the possibility of a Fed rate cut in March," said JPMorgan's Misra. Overall , the trend of the U.S. bond market in 2025 will be affected by economic resilience, Trump's policies, and the Federal Reserve's monetary policy.