The US dollar has strengthened more against a North Asia import-weighted basket than versus conventional currencies, according to BNY's Geoff Yu, heightening concerns about US inflation. He emphasizes that despite significant trade surpluses with the United States, CNY, JPY, TWD, and KRW have underperformed fundamentals. Yu contends that this misalignment increases the difficulty of adjusting the balance of payments and raises the possibility of an overshoot in the value of the US dollar.
Currencies in North Asia lag behind fundamentals
"The same remarks apply to all exporters from North Asia. The dollar seems to be returning to the upper end of its recent range against this group despite running ever-higher deficits against the United States."
This is also important for U.S. inflation because the U.S. has trade deficits with all of these countries; when looking at how much each country's currency is used in U.S. imports so far this year, the value of the U.S. dollar compared to the group of North Asian currencies (Chinese yuan, Japanese yen, Taiwan dollar, and South Korean won) has dropped by almost 4%.
Meanwhile, the wider dollar index, which shows how the US dollar is doing compared to other major currencies, has also risen by 1 percent.
There is a good reason to think the US dollar will do better than the other group because of differences in growth and policy. However, when it comes to adjusting payments balances, the currencies of North Asian export countries are not showing the changes in their trade terms.
At the same time, we expect the U.S. to push harder for those currencies to show âstrong fundamentalsâ of their economies. This would also help the Fed prevent the U.S. dollar from becoming too strong, which could make it harder to manage interest rates and economic policy.
Currencies in North Asia lag behind fundamentals
"The same remarks apply to all exporters from North Asia. The dollar seems to be returning to the upper end of its recent range against this group despite running ever-higher deficits against the United States."
This is also important for U.S. inflation because the U.S. has trade deficits with all of these countries; when looking at how much each country's currency is used in U.S. imports so far this year, the value of the U.S. dollar compared to the group of North Asian currencies (Chinese yuan, Japanese yen, Taiwan dollar, and South Korean won) has dropped by almost 4%.
Meanwhile, the wider dollar index, which shows how the US dollar is doing compared to other major currencies, has also risen by 1 percent.
There is a good reason to think the US dollar will do better than the other group because of differences in growth and policy. However, when it comes to adjusting payments balances, the currencies of North Asian export countries are not showing the changes in their trade terms.
At the same time, we expect the U.S. to push harder for those currencies to show âstrong fundamentalsâ of their economies. This would also help the Fed prevent the U.S. dollar from becoming too strong, which could make it harder to manage interest rates and economic policy.
