The U.S. dollar’s recent upward momentum has slowed across Asia as markets weigh the potential economic fallout from the ongoing U.S. government shutdown. The dollar index (DXY) has encountered technical resistance, with traders opting for caution while fiscal negotiations in Washington remain unresolved. Lawmakers have signaled openness to a temporary funding deal, but uncertainty over its passage continues to cloud investor sentiment. The prolonged shutdown has already begun to influence consumer and business confidence, with the University of Michigan’s consumer sentiment index slipping to 50.3 in November, down from 53.6 in October. Aviation sector disruptions ordered by the Federal Aviation Administration, including a 10% cut in flights from November 14, are expected to weaken travel activity and retail spending during the Thanksgiving period. These developments have sparked renewed debate over short-term fiscal resilience as the U.S. economy enters a critical holiday cycle.
In regional markets, Asian currencies reflected mixed trends in response to the dollar’s pause. The South Korean won (KRW) and Taiwan dollar (TWD) led losses, declining 2.1% and 0.7% respectively against the greenback last week. The selloff was largely attributed to sustained foreign equity outflows estimated at USD 4.8 billion from South Korea and USD 2.4 billion from Taiwan, driven by renewed concerns over high AI-sector valuations. These outflows underscore a shift in investor positioning, favoring liquidity and safety as risk appetite cools. In contrast, the Malaysian ringgit (MYR) has appreciated 0.6% against the U.S. dollar, breaking below the key 4.18 level and showing a 7% gain year-to-date. Malaysia’s stronger industrial output, up 5.7% year-on-year in September, alongside prudent fiscal management, has supported its currency outlook. Analysts at regional banks note that the MYR’s 2025 forecast of 4.1500 now appears attainable, with scope for further appreciation toward the 2024 high of 4.0950.
In China, inflation surprised to the upside, rising 0.2% year-on-year in October compared with a forecast of -0.1%, suggesting a modest domestic recovery in travel and consumer demand. While the uptick reflects holiday-related spending, economists maintain that the overall inflation outlook remains subdued, keeping the door open for further monetary easing. The People’s Bank of China is expected to continue liquidity injections through open-market operations to sustain growth momentum. The recent stability of the Chinese yuan (CNY) has also helped moderate regional FX volatility. Meanwhile, U.S. Federal Reserve officials reiterated that policy decisions will remain data-driven, even as key macro indicators face temporary delays due to the shutdown. Vice Chair Jefferson emphasized that sufficient economic data remain available to guide the Fed’s stance ahead of its December meeting, where policymakers are expected to balance persistent inflation against moderate domestic resilience.
