In recent months, the performance of currencies across Asia has raised alarm bells among economists and policymakers alike, particularly in the wake of a significant rise in the U.Sdollar indexSince mid-December 2024, the dollar index surged past the 108 mark and has maintained a position above this threshold, creating considerable strain on numerous Asian currenciesSeveral nations have seen their currencies plummet to historical lows, compelling central banks to consider intervention measuresIn fact, some central banks have openly pledged to provide "unlimited liquidity" when necessary to safeguard their local currencies from further depreciation.

On December 30, 2024, Vietnam's central bank reduced the reference exchange rate for the Vietnamese dong against the U.Sdollar, leading to a 0.1% decrease in the dong's value, which was reported at 25,479 dong per dollarThis not only marked a significant drop but also established a new low, surpassing the previous historical low recorded in May of that same year

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Similarly, the Indian rupee faced dire consequences as it hit an all-time low against the dollar on December 31, 2024, with the exchange rate reaching 85.6215 rupees per dollarThis represents an alarming trend where currencies from closely watching economies continue to falter under pressure.

The South Korean won has also succumbed to the ongoing crisis, currently floating at a rate of 1,475.305 per dollar — a record low not seen in many yearsOther currencies, including the Malaysian ringgit and the Indonesian rupiah, have equally suffered significant declines, showcasing a widespread phenomenon affecting many nations in the region.

It's pertinent to highlight that the turmoil is not restricted solely to Asian currenciesThroughout 2024, major currencies like the Japanese yen, Norwegian krone, and New Zealand dollar have performed poorly against the dollar, each exhibiting declines of over 10%. The euro, conversely, has depreciated approximately 5.5% against the dollar, now hovering around 1.04. Analysts predict that by 2025, the euro may reach parity with the dollar, a scenario that would rewrite economic expectations for several eurozone members.

The persistent rise of the U.S

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dollar is primarily attributed to an unexpected resilience in the American economy, bolstered by robust employment figures and fluctuating inflation ratesWhile projections initially suggested an impending recession, the U.Seconomy has demonstrated remarkable tenacity, prompting the Federal Reserve to approach interest rate cuts with more caution than anticipatedAlthough the Fed recently cut rates, it suggested a deceleration in the easing of monetary policy moving forward, which contributed to the dollar index climbing to its highest point in over two years.

The strong dollar is also a reflection of heightened protectionist trade policies and tariff measures that intensify inflationary expectationsThrough efforts to curtail illegal immigration, wage rates within the U.Sare also on the rise, further supporting the dollarMoreover, proactive fiscal policies are likely to push inflation upwards, contributing to the dollar's ongoing strength.

Since the beginning of 2024, the dollar index has surged by over 7%, marking what could be its best performance since 2015. With other currencies faltering, economies such as those in the eurozone and Japan have unexpectedly weakened, forcing the European Central Bank to maintain low interest rates and favorable monetary policies

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Conversely, Japan’s attempts to raise interest rates have felt increasingly ineffective, leading to significant adjustments in these currencies in recent times.

The vulnerabilities faced by Asian currencies are not solely attributed to external forcesInternal economic turmoil in various nations has exacerbated the situationFor instance, political instability in South Korea has shaken investor confidenceThe Indian rupee's decline can be largely attributed to a record trade deficit that hit $37.8 billion in November 2024, leading to continuous devaluation against the dollarEven amidst these challenges, the Reserve Bank of India has managed to fortify the rupee's position relative to other emerging Asian currencies.

In October 2024 alone, India saw its inflation rate soar to 6.2%, breaching the central bank's target ceiling of 4%, which marked a 14-month peakTo mitigate inflation, the Reserve Bank of India opted to maintain a high benchmark interest rate of 6.5%, a decision that has inadvertently hindered economic growth

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Recent GDP data revealed that India's growth rate for the third quarter stood at 5.4%, the lowest in seven quarters, significantly beneath the central bank's targeted 7% growthThis situation has raised critical questions about when the Reserve Bank of India might intervene to stabilize the rupee further.

On the other hand, in response to the depreciation of the Vietnamese dong, the Central Bank of Vietnam has reiterated its willingness to sell dollars to maintain exchange rate stabilityThe Vietnamese dong's exchange rate has been allowed to fluctuate within a 5% margin around the reference exchange rateDespite the challenges, Vietnam's economy has demonstrated notable strength in recent yearsBy September 2024, the country's GDP had soared by 7.4%, the fastest growth in two years, and significantly outpacing market expectationsFurthermore, the consumer price index (CPI) in September grew by 2.63%, below the anticipated 2.70%, with retail sales witnessing a considerable growth of 7.6%.

The plight of declining currencies comes with its set of dangers, chiefly that significant depreciation can result in import difficulties, amplifying inflation levels detrimental to economic health