Ahead Today
G3: FOMC Decision
Asia: South Korea retail sales, South Korea Department store sales, India industrial production
Market Highlights
The FX market had huge moves, capping off an extraordinary couple of days with the Dollar weakening sharply by 2.5% over the past few days, which was some of the largest FX and Dollar moves since April 2025 Liberation Day tariff announcements. To put things in context, EUR/USD is now above 1.20 from just 1.16 last week, USD/JPY is now closer to the 152 handle moving lower by 6-7 big figures, and USD/CNH has grinded lower to 6.94.
These huge FX moves were driven by a combination of President Trump’s comments overnight that he is comfortable with declines in the Dollar, potential FX intervention by the Bank of Japan to strengthen the Yen with a possibility of joint intervention with the US Treasury, coupled with increasing tariff and policy uncertainty from the Trump administration leading to an acceleration in Dollar selling. In particular, Trump singled out some Asian currencies that had weak currencies including the Japanese Yen and the Chinese Yuan, saying that it is “hard to compete when they devalue”, and that “the dollar’s doing great”.
What is different this time around is that the Japanese Yen is now participating in the Dollar decline, something which it has not done since June last year with the Dollar move far more EUR centric so far. Of course it is still unclear whether this strength in the Yen can continue with multiple uncertainties affecting JPY including the upcoming 8 Feb snap elections in Japan, but perhaps what matters is that there has been a clear line drawn in the sand by authorities including with the threat of US joint FX intervention moving forward.
From an Asia FX context all these matter a great deal because a weak JPY could have been one of the reasons why some Asian currencies including the likes of KRW, TWD, and to a smaller extent PHP have lagged the weak Dollar move so far. The Asian high yielders and especially INR has also underperformed significantly but over there we think it is more due to local reasons and for the INR depreciation trend to change, local drivers such as a resumption of capital inflows and/or a reduction in capital outflows probably has to happen.
Putting it all together, we quite like short USD/KRW as a possible way to express a catch-up play from Asian FX to the moves seen in G10 FX and USD/JPY so far, both because KRW has a high beta to JPY and EUR changes, and also because the South Korean won is probably one of the possible currencies that may be involved in a possible joint intervention effort with the US Treasury. Last but not least the fundamentals also suggest a pickup in memory export prices and that should be increasingly positive for South Korea’s export and currency prospects through 2026.
Apart from KRW, the likes of PHP could also be a good catch-up play given how much it has lagged the move lower in USD/JPY.
For USD/INR we are watching out closely for whether the foreign capital inflow trend changes, and at current levels we are not bearish from a tactical perspective on INR given how much INR has already underperformed.
