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Donald Trump’s return to the White House has significantly impacted Asia’s currency markets as traders in the US and Europe react to his late-night social media updates and announcements by engaging with the only active trading platforms.
The initial weeks of Trump’s second term have been characterized by unexpected policy declarations in the US that have unsettled markets and prompted traders to swiftly alter their positions.
“This is certainly driving a heightened level of demand and liquidity in the market,” remarked Beng Hong Lee, head of wholesale markets and platforms at SGX, the Singapore stock exchange.
“Due to the unpredictable nature of events — with weekend updates and late-night social media messages — we see London traders logging on at 1am to engage in Asian trading.”
The USD/CNH currency pair, which represents the US dollar against the offshore Chinese renminbi, has recently become the second-most traded currency futures contract, only surpassed by the dollar’s pairing with the euro.
In the second half of 2024, average daily volume in USD/CNH trading, occurring in Singapore, reached $16 billion, a rise of over 50 percent from the previous year.
In parallel, the average daily volume for the dollar against the Indian rupee, also traded on SGX, surged by 46 percent to $1.9 billion during the same period.
Since he took office in November, Trump has made numerous policy declarations and reversals, frequently late at night or during weekends.
These announcements have included a threat to impose tariffs on Colombia for obstructing US deportation flights, which was quickly retracted just hours after his inauguration.
The following Friday, the White House proposed imposing substantial tariffs on Canada, Mexico, and China, all of which retaliated that weekend. By Monday, the US had backed away from its threats against Canada and Mexico, while the tariffs against China took effect on February 10.
On Sunday, February 9, while en route to watch the Super Bowl, Trump announced to reporters aboard Air Force One his intention to impose 25 percent tariffs on all steel and aluminum imports, impacting market shares of various producers in Europe and Asia.
The swift-moving events have led traders to strive for rapid responses, noted Alexander von zur Mühlen, head of Asia-Pacific, Europe, the Middle East and Africa, plus Germany, at Deutsche Bank.
“European investors and corporate clients are seeking to hedge in Asia throughout the night, knowing that if they don’t act and wake up the next morning, it could be too late,” he added.
The global foreign exchange market operates 24 hours a day, across the entire week, due to the overlap of the four primary trading sessions in Sydney, Tokyo, London, and New York.
“The daily average trading volumes for most major FX currencies have seen significant increases following the inauguration,” stated Nathan Swami, head of foreign exchange trading at Citigroup.
He mentioned a notable rise in the usage of USD/CNH contracts for speculating on future currency movements and for hedging against exchange rate variances.
Bank of America analysts cautioned clients on Tuesday that continued uncertainty regarding US trade policy would likely exert considerable pressure on Asian currencies, given the trade surpluses that many Asian nations hold with the US.
“Keeping a long position in USD/CNH appears to us as the most prudent medium-term hedge, especially given that tariff increases against China are more likely to become permanent compared to other regions,” noted Adarsh Sinha, a foreign exchange and rates strategist at Bank of America Securities.
