In recent months, there has been a clear upward trend in Asian currencies after they were previously significantly undervalued. The Chinese yuan (CNY) and the Japanese yen (JPY) in particular have been under pressure, while the People’s Bank of China (PBoC) has tried to slow down the decline in value. Since July, however, there has been a trend reversal: Asian currencies have strengthened, while the US dollar (USD) remains overvalued against them – in some cases by 15% to 40%.
This development comes as no surprise. Asian economies have learned to budget in recent decades and have moderate levels of public debt. At the same time, they have a stronger growth dynamic than Western countries, especially the USA. As a result, Asian countries are increasingly using their own currencies in trade, as these have better economic fundamentals than the USD or euro.
Long-term Strength of Asian Currencies
This is not a short-term correction, but a long-term strengthening of the Asian currencies. Growing prosperity in Asia and robust economic development are stable foundations that support this trend. At the same time, uncertainty is rising in the USA due to increasing debt, while precious metal prices, especially gold, are also soaring.
Outlook for 2025
Strong growth is expected in Asia in 2025, particularly in China, which could grow by around 4%. Falling interest rates in Western countries, particularly in the USA, will inject additional liquidity into the global economy, which should further boost economic activity. American consumers, who have significantly reduced their debt levels following the financial crisis, have the opportunity to take out consumer loans thanks to their relative prosperity, which will further support consumption.
The US real estate market should also benefit from falling interest rates. Due to immigration and the decline in construction activity in recent years, there is a shortage on the real estate market, which makes price reductions unlikely.
The long-term strength of Asian currencies is just the beginning. Investors should keep a close eye on Asian currencies. These currencies offer solid long-term fundamentals and could play a central role in a global economy that increasingly looks to Asia.
