Asian currency markets remained mostly steady on Monday as investors balanced modestly positive economic data from China against renewed concerns over trade tensions between the United States and Europe. The US Dollar Index retreated from a recent seven-week peak, indicating a slight easing of the dollar’s strength during Asian trading hours. Specifically, US Dollar Index futures were down approximately 0.3% as of 03:58 GMT.
China’s economy provided a counterweight to the broader risk-averse atmosphere by reporting a fourth-quarter gross domestic product growth rate that marginally exceeded forecasts. This performance enabled China to achieve its official 5% economic growth target for the year 2025. Such results offer a measure of confidence regarding the economic momentum in Asia despite ongoing concerns stemming from subdued domestic demand and pressures within the property sector.
Reflecting this optimism, the onshore Chinese yuan declined slightly against the US dollar, with the USD/CNY pair reaching its lowest level since May 2023, edging down by 0.1%. This suggests moderate strengthening of the yuan in response to the encouraging economic indicators.
Meanwhile, risk sentiment was dampened by a new threat from U.S. President Donald Trump, who announced plans to impose tariffs on eight European countries that oppose his proposed purchase of Greenland. The initially proposed tariff would begin at 10% on February 1, escalating to 25% by June unless an agreement is reached. This announcement has revived concerns about a possible intensification of transatlantic trade disputes and the potential adverse impact on global markets.
Reportedly, the European Union may respond by suspending progress on the EU-U.S. trade agreement negotiations and resurrecting plans for a 93 billion euro tariff package targeting American goods. Additionally, France has advocated for deploying the EU's anti-coercion instrument against the United States. This tool is designed to counteract economic pressure exerted by third nations, signaling rising trade tensions.
Within Asian foreign exchange markets, most regional currencies traded within narrow bands as market participants refrained from making bold moves amid uncertainty. The South Korean won slightly weakened, with the USD/KRW pair rising by 0.1%, whereas the Singapore dollar strengthened modestly against the dollar, with USD/SGD slipping 0.2%. The Indian rupee held relatively flat with minimal variation, and the Australian dollar appreciated marginally, with AUD/USD up 0.1%.
The Japanese yen gained against the dollar, with the USD/JPY pair decreasing 0.2% to hit a ten-day low. This movement has been attributed to safe-haven demand prompted by ongoing global trade uncertainties. Further attention is focused on Japan’s domestic political landscape, where Prime Minister Sanae Takaichi is reportedly contemplating calling a snap election within the coming weeks to consolidate her leadership.
Analysts from MUFG noted that the yen faces short-term challenges stemming from the uncertainty surrounding the upcoming election. They indicated that more definitive trends in USD/JPY exchange rates may emerge post-February once electoral outcomes become clearer. Over the medium term, the bank’s global team continues to hold a view that the Japanese yen has weakened relatively substantially so far, and the bias remains towards a gradual decline in USD/JPY rates, contingent on the election results.