In the near term, this nervousness may cause more turbulence in the currency markets here. But, beyond that, our sense is that the worst will soon be over. A primary reason is that we do not see the current strength of the US dollar being sustained once financial markets start examining the US dollar’s fundamentals more critically. Moreover, China will not pro-actively devalue the yuan, given its policymakers’ concern with maintaining stability.
The surging US dollar has sparked much concern over where Asian currencies are headed. The devastation caused by the Asian currency crisis of 1997 remains fresh in many minds. So does the “taper tantrum” of 2013 when the Indonesian rupiah, the Indian rupee and the Philippines peso all swooned because the US Federal Reserve was thinking of tightening its monetary policy,
Although many years have passed since those troubling events, the recent depreciation of exchange rates in Asia has led to unsettling speculation of a worsening situation, such as a possible devaluation of the Chinese yuan.
