Investing.com-- Asian currencies faced significant downward pressure on Tuesday, as the U.S. dollar rebounded sharply amid a global financial market shakeup linked to Chinese artificial intelligence startup DeepSeek.
Traders also remained cautious ahead of the Federal Reserve’s policy meeting later this week, which is expected to influence global currency markets.
The US Dollar Index climbed 0.6% in Asian trading on Tuesday, after U.S. President Donald Trump reiterated his push for higher universal tariffs, which could exceed 2.5% and potentially reach up to 20%.
This has heightened concerns about trade wars and their impact on global growth, bolstering the dollar’s safe-haven appeal.
The US Dollar Index Futures were 0.5% higher.
Asian Currencies tumble amid SeekDeep shakeup
The dollar’s strength was further fueled by DeepSeek’s AI advancements, which triggered a sell-off in U.S. tech stocks and spilled over into Asian markets.
The company’s latest AI model reportedly rivals offerings from industry giants like OpenAI and Meta (NASDAQ:META), raising concerns about China’s ability to close the technological gap despite U.S. restrictions on advanced semiconductor exports.
This development has triggered risk-off sentiment across markets, with investors fearing the potential for increased geopolitical tensions and trade restrictions between the U.S. and China.
The Chinese yuan’s offshore pair USD/CNH jumped 0.5%, reflecting ongoing pressure from U.S. tariff threats. Onshore markets were shut for the Lunar New Year holiday.
The Japanese yen’s USD/JPY pair jumped 0.8%. Inflation data from Tokyo will also be in focus this week.
The South Korean won’s USD/KRW pair surged 1.1% amid political uncertainties in the country.
The Australian dollar’s AUD/USD pair fell 0.6%. The release of monthly and quarterly CPI data is due on Wednesday and will likely influence expectations for the Reserve Bank of Australia's policy decisions.
The Indonesian rupiah’s USD/IDR pair jumped 0.7%, while the Singapore dollar’s USD/SGD pair gained 0.6%.
The Indian rupee’s USD/INR pair inched 0.1% higher, while the Thai baht’s USD/THB rose 0.3%.
Fed decision, PCE data in focus
Investors are now turning their attention to the Federal Reserve’s policy meeting starting later this week. While the Fed is widely expected to hold rates steady on Wednesday, its commentary on inflation and future rates will be critical for currency markets.
Asian currencies are likely to remain under pressure in the near term, with the dollar’s strength and tariff uncertainties overshadowing regional fundamentals.
Fed’s preferred gauge of inflation - PCE price index data, and advance GDP estimates for the fourth quarter are also due this week, which could further dictate the Fed’s policy outlook.