Dollar strength squeezes currencies from Asia to Europe

Asian and Central and Eastern European currencies started the week under pressure on Monday as a hawkish Federal Reserve stance, AI-driven equity volatility, and lingering U.S.-Iran tensions kept the dollar bid across global markets.

Asian FX Under Strain

The South Korean won weakened further against the dollar on Monday, with the USD/KRW exchange rate rising above 1,540, extending losses that have persisted since the Federal Reserve's June 18 meeting signaled a "high-for-longer" rate environment. The won has been among the worst-performing Asian currencies in recent weeks, having already breached the 1,500 level for the first time since the 2009 global financial crisis back in March.youtube+2

MUFG Research noted that under new Fed Chair Kevin Warsh, the central bank has pivoted toward a more hawkish tone, with core PCE inflation still running above 3% and market pricing for a potential rate hike around October remaining intact. The Thai baht, Philippine peso, and won have led regional losses since the June FOMC meeting, according to MUFG, which maintains a "defensive bias" on select Asian currencies.mufgresearch

The broader selloff in technology stocks has added to headwinds. Semiconductor shares have faced sharp declines as investors question the sustainability of debt-funded AI spending, erasing trillions in market value from the Nasdaq Composite in recent weeks.prospect+1

U.S.-Iran Tensions Cloud Outlook

Renewed military exchanges between the United States and Iran over the weekend injected fresh uncertainty into markets. NPR reported that weekend attacks in the Gulf have cast doubt on technical talks meant to implement the interim memorandum of understanding agreed earlier this month. A senior White House official said the talks remain "on track," but Iran's deputy foreign minister said they would proceed only "when the conditions are met".npr

The conflict, which prompted Iran's closure of the Strait of Hormuz earlier this year, had caused global energy prices to spike and driven investors into safe-haven assets including the dollar. While the two sides have agreed to pause strikes and reopen the strait, analysts view the arrangement as fragile conflict management rather than lasting peace.aljazeera+2

CEE Currencies Feel the Squeeze

In Central and Eastern Europe, ING strategist Frantisek Taborsky said a stronger dollar and lower oil prices have led markets to unwind most rate hike expectations in Poland and the Czech Republic. The EUR/PLN pair could test 4.290, though ING expects 4.300 to hold as resistance. Polish inflation data this week, expected to come in at 2.9%, will be closely watched for further direction.tmgm+2

With U.S. real yields remaining elevated and no Fed pivot in sight, the pressure on emerging-market currencies from Asia to Central Europe looks set to persist.vtmarkets+1