US dollar outlook uncertain, Taiwan's Central Bank finds prediction difficult

Taiwan's Central Bank acknowledges significant difficulty in forecasting the US dollar's future performance, citing the unpredictable nature of US monetary policy and escalating geopolitical risks. Tsai Chiong-min, director of the Central Bank's Foreign Exchange Department, stated that while the market initially expected a more dovish stance from the new Federal Reserve chair, actual policy will depend on inflation data.

With US inflation persistently above the Federal Reserve's 2% target, the likelihood of interest rate cuts by year-end appears low. Some analysts even suggest the possibility of further rate hikes. Tsai noted that the Fed's dot plot, previously used to gauge future interest rate paths, might not serve as a strong policy guide under the new leadership. Geopolitical tensions also play a crucial role; as a global reserve currency, the US dollar often strengthens during international instability as investors seek safe havens. However, the rapid and unpredictable shifts in global affairs add another layer of uncertainty to the dollar's outlook.

Despite these global uncertainties, Tsai emphasized that the New Taiwan dollar (NT dollar) has shown remarkable stability. As of June 4, the NT dollar had depreciated by only about 0.07% against the US dollar since the end of last year, remaining nearly flat. This performance contrasts sharply with other major currencies, such as the Japanese yen (down 2.08%), the South Korean won (down 5.99%), and the Euro, which have all experienced depreciation during the same period.

Tsai further clarified that recent increases in import prices are not due to NT dollar depreciation but rather to the rise in international oil and raw material prices. Global oil prices have surged from $60-$70 per barrel to $80-$100, driving up energy and commodity costs. The Central Bank has made efforts to ensure its exchange rate policies do not add further pressure on import prices. Tsai asserted that the NT dollar's relative stability has helped mitigate the impact of these global price increases on Taiwan's import costs and inflationary pressures.