Ahead Today
G3: Eurozone industrial production, US Empire Manufacturing, US Initial Jobless Claims
Asia: Bank of Korea Policy Meeting and Press Conference, India Trade
Market Highlights
The Dollar was marginally weaker while in Asia the higher yielders such as INR, IDR and PHP underperformed, with some near-term relief on geopolitical risks even as oil prices remain around the US$66/bbl levels. The big story in Asia FX was also a combination of sharp appreciation in the South Korean won helped by supportive comments from US Treasury Secretary Bessent, while the Japanese Yen reversed some of its weakness as markets processed ongoing prospects for a possible snap election.
In particular, Brent oil prices dipped slightly as US President Donald Trump signalled he may hold off on military action in Iran for now, saying he was reassured by sources “on the other side” that the government in Iran would stop killing people involved in protests, according to Trump. These comments come even as the US has redeployed some personnel in Qatar and other American bases from ongoing geopolitical tensions and possible Iranian threats to target those locations. The rise in oil prices is likely one key factor weighing on some Asia FX in the near-term, and our previous analysis although written for a different event is still relevant, highlighting the likes of KRW, THB, PHP, and INR as more vulnerable in Asia if oil prices were to spike further (see Asia: Impact of oil price shock). Further oil price increases is not our base case, and we will look to see if the likes of PHP retraces some weakness on these recent oil price moves.
In Asia, the South Korean won strengthened sharply as US Treasury Secretary Scott Bessent called out excessive declines in the South Korean won, making his remarks after a meeting with South Korea’s Finance Minister Koo Yun Cheol. Bessent “emphasized that excess volatility in the foreign exchange market is undesirable”, and noted that the “recent depreciation of the Korean won was not in line with Korea’s strong economic fundamentals. Post these comments, USD/KRW moved sharply lower from the 1475 levels towards 1467, while the near-term relief in the Japanese Yen also helped given the correlation between the two pairs. Markets will watch closely as well for the press conference during the Bank of Korea policy meeting today, with the BOK Board currently split 3-3 in favour of a rate cut over the next 3 months. Any changes in this vote share and any changes in forward guidance from BOK Governor could be important. We see BOK keeping rates on hold for now given rising housing prices, a weak South Korean Won, and also signs of improvement in the memory exports and capex cycle.
On the macro data front, China’s exports grew by a stronger than expected 6.6%yoy in December from 5.9%yoy previously. The details show that China has continued to diversify its export markets beyond the US, including to emerging markets such as to ASEAN, Latin America and Africa, and also fits well with one of our key themes highlighting how Asia will continue to develop new patterns of trade (see Asia FX Outlook 2026 – Returning to divergent fundamentals).
Beyond the China specific story on exports, we think the bigger story from the early reporters for Asia-ex-Japan is that exports remain very robust and resilient for the likes of China, South Korea, Taiwan and Vietnam.
If anything, our favourite lead indicators for Asia’s exports including industrial metals suggest exports growth should accelerate moving forward. If this is right, this could be supportive of the higher beta and lower yielding Asian currencies in our region such as KRW, CNY, TWD and MYR, assuming geopolitical risk premia and oil prices fade.
