USD weakens as concerns over renewed Asia FX intervention resurface – OCBC

Asian Currency Moves and Dollar Trends

The US dollar slipped slightly, lacking any major drivers. Renewed attention was drawn to interventions in Asian foreign exchange markets after Japan’s Finance Minister Katayama and senior MOF official Mimura issued verbal warnings. Additionally, US Treasury Secretary Bessent pointed out that the Korean won’s recent weakness does not align with Korea’s solid economic fundamentals, according to OCBC FX analysts Sim Moh Siong and Christopher Wong.

Risk Aversion Weighs on the Dollar as Fed Outlook Remains Unclear

Although US consumer spending data remained strong, American stock markets declined as investors shifted away from technology shares. Falling Treasury yields and gains in precious metals reflected a cautious market mood. The Beige Book provided some early optimism for 2026, noting that most Federal Reserve districts saw the first signs of increased activity in a year and anticipate further progress.

Meanwhile, the Supreme Court postponed its decision on the IEEPA tariff case once again, leaving investors uncertain. Federal Reserve officials remain divided: Minneapolis Fed’s Kashkari maintained a hawkish stance, stating there is "no reason to cut rates in January," while Philadelphia Fed’s Paulson suggested that modest rate reductions may be "appropriate" later in the year.

Looking ahead, only mild US dollar softness is anticipated in the first half of 2026, amid ongoing concerns about institutional and Federal Reserve independence. However, robust US economic data, fueled by AI-related investments and fiscal stimulus from the OBBB Act, could help the dollar recover in the latter half of the year.