Dollar Hits Daily High on Fed Hike Fears, Trading Tops $70 Billion

The Taipei foreign exchange market closed today at NT$32.265 against the U.S. dollar, down 19.2 cents from the previous trading day, with turnover reaching a record single-day high of US$7.03 billion. The decline represents the New Taiwan dollar's largest single-day depreciation against the greenback since late last year, as well as its steepest drop since mid-2023. The market broadly attributed the volatility to heightened expectations of interest rate hikes by the U.S. Federal Reserve and shifts in global capital flows. The widening interest rate gap between Taiwan and the United States has spurred capital outflows back to the U.S. market, further dampening demand for the local currency.

Over the past two weeks, the NT dollar has continued to weaken against the U.S. dollar. Earlier this month, the Federal Reserve announced it would maintain interest rates between 5.25% and 5.50% while hinting at the possibility of further rate increases. The move strengthened the dollar, exerting external pressure on the NT dollar. Compounded by an uneven global economic recovery, investors have redirected funds toward higher-risk assets, subjecting the NT dollar, as an emerging market currency, to greater volatility. At its monetary policy meeting on Tuesday, Taiwan's central bank stated that it will continue to monitor exchange rates and capital flows, adjusting policy tools based on market conditions.

The depreciation of the NT dollar presents both benefits and drawbacks for Taiwan's economy. From an export standpoint, a weaker currency enhances the competitiveness of Taiwanese goods in international markets and eases cost pressures on exporters, thereby stimulating export demand. Conversely, higher import costs will drive up consumer prices, putting pressure on domestic demand and inflation. Taiwan's major imports—such as petroleum, steel, and electronic components—are denominated in U.S. dollars. Depreciation directly increases import costs, which in turn squeezes the gross profit margins of the manufacturing sector.

In response to currency fluctuations, Taiwan's central bank has repeatedly reiterated that it will maintain its existing monetary policy framework while reserving the right to intervene in the foreign exchange market when necessary.