Taiwanese dollar surges as “appreciation by stealth” mooted
The US dollar was weaker across Asia to start the week as a historic sell-off in the USD/TWD pair, causing the Taiwanese dollar to surge higher, led the greenback lower.
The USD/TWD fell 3.7% on Friday – the market’s biggest one-day fall since 1988, according to the Wall Street Journal – and was followed by a 2.4% loss on Monday sending the pair to the lowest level since 2022.
Reuters reported there was no clear catalyst for the fall in the pair but a lack of USD buyers was seen in the market. Notably, Asian markets were quieter on Monday, with holidays in Japan, Hong Kong and South Korea.
The move corresponded with US-Taiwan trade talks and could be a sign the Taiwan government was allowing the TWD to rise – essentially an “appreciation by stealth” move. The Taiwanese central bank rejected the claims saying it was not involved in trade talks and “doesn’t manipulate foreign exchange rates”.
The USD was lower across Asia with the AUD/USD rising to five-month highs while the USD/CNH fell to 11-month lows.
The USD/HKD – managed in a tightly-controlled peg by the Hong Kong Monetary Authority – fell to the lowest level since 2020.
Dovish signals point to BOE’s May rate cut
We anticipate a 25bp rate cut by the Bank of England at its May meeting on Thursday.
Given the relatively dovish remarks made by several Monetary Policy Committee members after the tariff announcements in early April, there is a chance that there will be more dissent from committee members.
Because of the conflicting evidence that has been made public after the March meeting, cautious rate cuts are still necessary.
Despite acknowledging the impact of trade policy uncertainties, we believe that recommendations will not alter.
While an upward revision to the BoE’s Q1 GDP outlook may be followed by downward revisions for coming quarters, a combination of lower energy costs, higher sterling, and a lower starting point for the Bank’s inflation predictions supports downward revisions to the Bank’s CPI profile.
We believe that the risks of more aggressive easing have increased.
GBP/USD have surged and returned more than 6% YTD gains. However, it has recently corrected by 1% from its near seven-month highs of 1.3444 – a potential sign of reversal.
The next key support for GBP/USD lies at the 21-day EMA of 1.3232, followed by 50-day EMA of 1.3055.
AUD supported as Labor landslide keeps stimulus in place
The Aussie extended gains on Tuesday as the market continued to feel the impact of the weekend’s election. Australia’s Labor Party, led by Anthony Albanese, secured a decisive victory, winning at least 82 seats and potentially up to 90, a significant jump from 77 in 2022.
This majority strengthens Labor’s position in the Senate, likely enabling the passage of key policies, including doubling the tax rate on superannuation earnings above AUD 3 million and AUD 18 billion in household tax cuts.
Fiscal policy will remain highly stimulatory, supporting economic growth.
As a result, the Reserve Bank of Australia has lagged other central banks in cutting rates, but is expected to cut rates by 25bps in May, with further reductions totaling 100bps in 2025.
In Europe, the Australian dollar has struggled in 2025 as trade tensions weighed on the currency. This weakness saw the GBP/AUD hit ten-year highs while the EUR/AUD hit five-year highs.
However, both markets reversed sharply in April potentially setting up further losses for GBP/AUD and EUR/AUD from recent highs.
USD plunges in Asia
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 5 – 10 May
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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