Taipei: The U.S. dollar is expected to dip below the NT$30 mark in the short term, as traders prepare for potential pressure from the United States for the Taiwan dollar to appreciate, stated Lin Chi-chao, chief economist at Cathay United Bank.

According to Focus Taiwan, after a significant drop in the U.S. dollar against the Taiwan dollar on Friday, Lin expressed that the Taiwan currency’s strength is likely to persist due to these market expectations. The U.S. dollar fell NT$0.953, or 3.07 percent, reaching NT$31.064 against the Taiwan dollar, marking its lowest level since January 9, 2024. This decline represented the steepest single-session drop since 2002, positioning the Taiwan dollar as the strongest currency in the Asian market on that day.

During Friday’s session, the U.S. dollar experienced a further dip of NT$0.1247, before central bank intervention helped it recover some losses. The central bank confirmed its involvement in mitigating market volatility through a statement issued Friday evening.

In addition to anticipated U.S. pressure, Lin noted that a strong performance on the Taiex, driven by significant foreign institutional net buying, and the expectation of a U.S. Federal Reserve rate cut of 100 basis points this year, contributed to the Taiwan dollar’s robust performance on Friday. Lin highlighted that the expected U.S. pressure to appreciate the Taiwan dollar was a dominant market factor, as Taiwan, among other Asian countries, aimed to reduce trade surpluses with Washington in light of upcoming tariff negotiations.

Lin referenced the “Plaza Accord” of 1985, suggesting that traders in the local forex market are wary of a potential “Plaza Accord 2.0” amid current tariff discussions. Despite this, Lin indicated that the Taiwan dollar’s single-session gains reflected an overreaction by traders to these concerns.

While Lin predicts a short-term drop of the U.S. dollar below the NT$30 mark, he anticipates that the Taiwan dollar will align with other Asian currencies over the longer term, suggesting that it is unlikely for the local currency to remain isolated in the global forex market.

In a separate announcement on Thursday, the central bank clarified that it has not received any requests from the U.S. Department of the Treasury to advocate for a stronger Taiwan dollar, amidst speculation following the currency’s recent surge against the U.S. dollar.

Wu Meng-tao, head of the sixth research division at the Taiwan Institute of Economic Research, indicated on Friday that the Taiwan dollar’s appreciation aligned with the local currency catching up to the Japanese yen, which had recently strengthened against the U.S. dollar. Lien Hsien-ming, President of the Chung-Hua Institution for Economic Research, mentioned that to his knowledge, the U.S. did not necessitate Japan to fortify the yen during their tariff discussions.