Asian Currencies Gain Strength Amid Trade War Optimism

Short positions on Asian currencies have dropped to multi-month lows as investor sentiment shifts, reducing fears of a prolonged global trade war. Analysts are now showing a greater appetite for risk-sensitive assets, leading to a softer bearish stance on the Chinese yuan, Singapore dollar, and South Korean won, according to a recent market poll.

The Thai baht emerged as one of the strongest performers, gaining over 2% since the start of the year. Experts attribute this rise to increasing gold prices, though uncertainties linked to the U.S. market remain. Meanwhile, minutes from the U.S. Federal Reserve's latest meeting suggest concerns over inflation, casting doubt on the timeline for potential interest rate cuts. Markets currently see a 45.5% chance of a rate reduction in mid-July.

The U.S. dollar index has dropped by 2.6% this month, signaling that recent tariff threats may be more of a negotiation tactic than a firm policy direction. Analysts have scaled back short positions on Asian currencies as initial fears of aggressive tariffs appear to be easing.

The Indian rupee, despite some recovery, remains under pressure after the Reserve Bank of India's first rate cut in nearly five years. Other regional currencies, including the Taiwan dollar, Philippine peso, Malaysian ringgit, and Indonesian rupiah, have also seen reduced short positions, reflecting a more positive market outlook.