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The US dollar has continued to weaken at the start of the New Year with weakness most evident against Asian currencies. USD/CNY has fallen back below the 6.5000 level for the first time since June 2018 as the pair moves closer to the lows put in place earlier that year at just below the 6.2500 level. Economists at MUFG Bank expect Asian currencies to continue to trend stronger in 2021.

Key quotes

“The weakening trend for the US dollar against Asian currencies has been relentless since the middle of last year and there are few signs that it is set to reverse anytime soon.”

“Asian currencies are continuing to benefit in part from the relative cyclical outperformance of Asian economies during the COVID-19 crisis. The spread of covid remains more contained within Asia allowing domestic economies to expand more without restrictions and fear impacting activity in comparison to in Europe and America.”

“There are some signs of slowing momentum in China which has led the global recovery from the COVID-19 shock. The official manufacturing PMI fell to 51.9 in December from a three-year high of 52.1 in November. Similarly, the Caixin/Markit PMI fell to 53.0 from 54.9. It casts some doubt on whether strong recovery momentum can be sustained in the face of the renewed weakness outside of Asia in response to the ongoing spread of covid in Europe and America over the winter. We continue to believe though that economic fundamentals remain favourable for further Asian currency gains in 2021.”