The latest ferocious offensive of the US dollar is like a sharp sword aimed at the throat of central banks, forcing them to rise to the challenge, and emerging markets, especially Asia, have become a key battleground. In recent days, the central banks of South Korea, Thailand and Poland have spoken out intensively, either saying that they are closely monitoring currency fluctuations or making it clear that they will intervene if needed. Indonesia's central bank and Peru's central bank sold the dollar more directly. Last week's higher-than-expected US inflation data dampened bets on a Fed rate cut and provided strong support for the dollar. In addition, growing tensions in the Middle East could trigger a new surge in demand for the US dollar, a safe-haven currency. Since April, the U.S. dollar index has risen by 1.4%.
Marcella Chow, a global market strategist at JPMorgan Asset Management in Hong Kong, said in a recent media interview: "At the moment, we do see a lot of verbal intervention from different central banks. "Given that the Fed seems unlikely to ease policy anytime soon, more depreciation of Asian currencies is likely, which could mean more verbal intervention may be needed. Analysts believe that as long as the dollar remains strong, the pressure on emerging market central banks will continue, and their task of stabilizing the exchange rate of their currencies and coping with the shock of capital outflows is still arduous.
There has been a marked increase in verbal interventions, and the Thai authorities are doing everything they can to prop up the baht. Year-to-date, the Thai baht has depreciated by about 6% against the US dollar.
Faced with the dilemma of the continued weakening of the baht, the Bank of Thailand tried to push the baht higher through rhetoric. At its April 10 meeting, the Bank of Thailand said it would continue to closely monitor volatility in the foreign exchange market. At this interest rate meeting, the Bank of Thailand ignored Prime Minister Srettha Thavisin's willingness to ease monetary policy and kept interest rates unchanged to support the Thai baht exchange rate. Earlier, Poland's central bank reiterated at its April 4 meeting that it could intervene to prop up the local currency, the zloty. After keeping interest rates unchanged, the central bank said that a stronger zloty would help curb inflation.
The Bank of Korea also said it was keeping a close eye on the won. Bank of Korea Governor Rhee's speech included verbal intervention language. The won came under pressure last week, falling 1.4% against the dollar in a week.
In response to the dollar's rise, some central banks have shifted from verbal intervention to actual action. Bank Indonesia bought the rupiah directly to limit its depreciation, and plans to shore up the currency this year by intervening and selling high-yield securities. Bank Indonesia Governor Perry Warjiyo said intervention and the sale of high-yield securities would be the main levers to support the currency this year.
Peru's central bank unexpectedly cut interest rates last week, and reports say that the central bank has been selling the dollar frequently in recent months to support the sol. Officials have said the goal of the intervention is to reduce local currency fluctuations. On top of that, the Bank of Israel has engaged in an unprecedented dollar sell-off after the Hamas attack in October to protect the shekel, not primarily in response to a strong dollar. Paul Mackel, head of global FX research at HSBC Holdings in London, said: "Asian central banks simply cannot let their guard down. Given that weaker currencies tend to exacerbate price pressures, this could also mean that, in fact, last-mile inflation is hard not only for the US, but also for many different economies. ”