The New Taiwan dollar dropped more than 8 percent against the US dollar in the Year of the Tiger, the steepest annual decline in 25 years, with the greenback bolstered by aggressive interest rate hikes made by the US Federal Reserve.
The NT dollar closed at NT$30.368 against the US dollar on Thursday, the last trading session before the Lunar New Year holiday, down NT$2.54, or 8.36 percent, for the lunar calendar year.
Beginning in 2019, the NT dollar appreciated in value for three consecutive years as it benefited from the US-China trade war, quantitative easing policies during the COVID-19 pandemic and robust domestic stock market growth.
It closed out the previous lunar year, the Year of the Ox, at NT$27.828 against the US dollar.
However, the Year of the Tiger brought a sharply different set of circumstances, with Russia’s invasion of Ukraine, rising inflation and the US Fed raising interest rates by a cumulative 425 base points.
As the US dollar soared, the NT dollar — facing pressure from declining exports — sank from NT$27 to a low of NT$32 against the greenback in a “rarely seen” margin of decline, a foreign exchange industry source told CNA.
Only when the Fed began signaling late last year that it would slow the rapid pace of interest rate increases, causing the US dollar to drop, was the NT dollar able to rebound slightly, the person said.
Looking ahead to the Year of the Rabbit, the US is likely to end its rate hikes, and possibly even lower rates at the end of this year, which would improve the NT dollar’s prospects of regaining some of the value it lost in the Year of the Tiger, the source said.
While falling US inflation has fanned speculation that the Fed would further slow its pace of interest rate hikes, several top US central bank officials have said more still needs to be done before they are satisfied prices are under control.
US Fed Vice Chair Lael Brainard on Thursday said policymakers would “stay the course” in lifting rates.
“Even with the recent moderation, inflation remains high and policy will need to be sufficiently restrictive for some time,” Brainard told an event in Chicago, adding that it would ensure inflation returns to 2 percent on a sustained basis.
At a separate event on Thursday, New York Fed President John Williams said inflation remained too high, and that bringing down prices would likely require a “period of below-trend growth and some softening of labor market conditions.”
While the Fed has taken strong action, “it is clear that monetary policy still has more work to do,” he said, adding that policy affects parts of the economy differently.
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