U.S. dollar expected to dip below NT$30 mark in short term: Economist

Taipei, May 3 (CNA) The U.S. dollar is expected to fall below the NT$30 mark in the short term, as traders anticipate that Taiwan will face pressure from the United States to allow the Taiwan dollar to appreciate, according to Lin Chi-chao (林啟超), chief economist at Cathay United Bank.

After the greenback fell sharply against the Taiwan dollar on Friday, Lin told CNA that the local currency's strength is expected to persist in the short term, driven by this psychological factor.

On Friday, the U.S. dollar fell NT$0.953, or 3.07 percent, to NT$31.064 against the Taiwan dollar, its lowest level since Jan. 9, 2024, when it closed at NT$31.023. The loss marked the steepest single-session decline since 2002.

The gains made the Taiwan dollar the strongest currency in the Asian market on Friday.

The U.S. dollar dropped by NT$0.1247 at one point during Friday's session, but the central bank's intervention helped the American currency recover part of its losses. In a statement issued Friday evening, the central bank confirmed it had stepped in to smooth market volatility.

In addition to expectations of U.S. pressure for the Taiwan dollar's appreciation, Lin said a strong performance on the Taiex, the benchmark index on the main board, driven by large foreign institutional net buying, to surge 552.61 points, as well as hopes that the U.S. Federal Reserve will cut rates by 100 basis points this year, also contributed to the Taiwan dollar's strength on Friday.

Lin said that expected pressure from the U.S. to strengthen the Taiwan dollar largely dominated the market, as many Asian countries, including Taiwan, aimed to reduce their large trade surpluses with Washington ahead of tariff negotiations.

Referring to the "Plaza Accord" signed in 1985 by the U.S., Japan, West Germany, France and the United Kingdom, which allowed Washington to intervene to weaken the U.S. dollar, Lin said many traders in the local foreign exchange market now feared the current tariff negotiations could lead to a "Plaza Accord 2.0."

However, Lin said the single-session gains posted by the Taiwan dollar showed that traders had overreacted to such concerns.

Although Lin forecasted that the U.S. dollar would fall below the NT$30 mark in the short term, he said the Taiwan dollar is expected to move in line with other Asian currencies in the longer term, making it unlikely for the local currency to remain singled out in the global forex market.

In a separate statement released Thursday, the central bank said it has not received any request from the U.S. Department of the Treasury to push for a stronger Taiwan dollar, amid speculation fueled by the currency's recent sharp rise against the U.S. dollar.

Wu Meng-tao (吳孟道), head of the sixth research division at the Taiwan Institute of Economic Research, said Friday that the appreciation of the Taiwan dollar reflected the local currency catching up to the Japanese yen, which had risen sharply against the U.S. dollar in recent sessions.

Chung-Hua Institution for Economic Research President Lien Hsien-ming (連賢明) said that, to his knowledge, the U.S. did not require Japan to strengthen the yen during their tariff talks.