Asian Currencies Climb On US Trade Optimism

Korean Won and Taiwan Dollar Strengthen as Investors Eye Bilateral Deals

Asian currency markets showed renewed strength this week as investor sentiment shifted in favour of the Korean won and Taiwan dollar, driven by growing expectations of new bilateral trade agreements with the United States. The rally comes amid a wider reassessment of US trade strategy in the Indo-Pacific, with financial markets interpreting recent diplomatic signals as the start of a more targeted, economy-specific approach to economic cooperation.

The gains reflect increased investor confidence in the prospect of more stable, rules-based trade with key Asian manufacturing hubs, particularly those aligned with US geopolitical and economic interests.

Regional Market Gains Lead by Won and Taiwan Dollar

The Korean won rose to a four-month high against the US dollar on Wednesday, gaining nearly 1.3% over the week. The Taiwan dollar also appreciated, adding close to 0.9% amid higher demand from offshore investors. Both currencies outpaced regional peers, with more modest gains recorded in the Singapore dollar and the Thai baht, and a largely flat performance in the Japanese yen and Chinese yuan.

The currency appreciation coincided with increased foreign inflows into equity markets in Seoul and Taipei. Local tech and manufacturing stocks saw sharp upticks as investors positioned themselves for possible export tailwinds resulting from closer trade alignment with Washington.

“The market is anticipating real movement on bilateral trade,” said Hiroshi Tanaka, a currency strategist at Nomura. “It’s not just about tariffs anymore, but about long-term cooperation in supply chains, semiconductors, and strategic materials. Korea and Taiwan are central to that.”

Trade Deal Hopes as Primary Catalyst

The rally has been fuelled by reports that the US is preparing a new set of bilateral economic agreements with selected Asian partners. While the White House has not officially confirmed any new treaties, recent visits by US trade officials to Seoul and Taipei, coupled with business-focused dialogue around chip supply chains and clean energy components, have heightened speculation.

Unlike the broader and slower-moving Indo-Pacific Economic Framework (IPEF), which lacks enforcement mechanisms, these potential bilateral agreements are expected to focus on practical trade facilitation measures, digital standards, and market access in key sectors.

Investors view such deals as beneficial for Korea and Taiwan, given their export-heavy economies and existing industrial links to US manufacturing. If realised, they would enhance regulatory certainty and deepen integration with the US economy at a time when global trade flows are being reshaped by both geopolitics and industrial policy.

US Trade Policy Shift: From Multilateral to Bilateral

This currency rally reflects more than just market positioning—it signals how US trade policy has evolved. Facing political gridlock at home and an increasingly adversarial China abroad, the Biden administration has turned to focused bilateral partnerships to achieve its strategic aims. Supply chain security, especially in semiconductors, rare earths, and EV battery materials, has taken centre stage.

Recent policy initiatives—such as the CHIPS and Science Act and incentives for reshoring strategic industries—have encouraged US companies to reduce dependency on mainland China and build closer ties with friendly economies. Korea and Taiwan, as established hubs for semiconductor production and advanced manufacturing, stand to benefit from this pivot.

Impacts on Korea and Taiwan’s Economic Position

While a stronger won or Taiwan dollar can weigh on export competitiveness by making goods more expensive abroad, the current appreciation is being interpreted as a vote of confidence in both economies. Trade optimism, investor inflows, and a stable macroeconomic backdrop are offsetting concerns around reduced price competitiveness.

“Currency strength may dent exports marginally, but if trade deals create long-term demand stability and reduce policy uncertainty, the net effect could still be positive,” said Lin Mei-hua, senior economist at DBS Group.

Moreover, tighter integration with the US market may offer insulation against China-related supply chain disruptions or economic slowdowns. Both Korea and Taiwan have faced growing pressure to navigate tensions between Washington and Beijing—these trade developments may provide a clearer path forward.

Outlook: Is the Rally Sustainable?

Whether the gains in the won and Taiwan dollar are sustainable depends on the timing and substance of any forthcoming trade agreements. Investors are watching closely for concrete policy announcements, especially any indication of tariff reductions, investment frameworks, or regulatory harmonisation.

Some analysts have cautioned that markets may be getting ahead of policy. “Until we see actual deals signed, the rally remains sentiment-driven,” said Emily Zhang, FX strategist at Barclays. “Any delay or reversal in US trade priorities could trigger a pullback.”

In addition to trade policy, investors are monitoring macroeconomic indicators and US Federal Reserve guidance. Dollar strength, driven by interest rate expectations, remains a counterweight to any sustained Asian currency appreciation.

Conclusion

The strengthening of the Korean won and Taiwan dollar underscores the sensitivity of currency markets to geopolitical shifts and trade policy developments. For now, investor optimism around prospective US-Asia bilateral trade agreements is fuelling a notable rally in regional FX markets.

If these agreements materialise, they could cement a new phase of strategic economic alignment between the US and its key Indo-Pacific allies. However, until firm commitments are in place, the gains remain as much about political expectation as economic fundamentals. In a fragmented global trade landscape, clarity and follow-through from policymakers will be critical to maintaining momentum.

Author: Brett Hurll