Asia FX: De‑escalation needed for stability – MUFG

MUFG’s Senior Currency Analyst Lloyd Chan maintains a defensive stance on Asia FX as the US‑Iran conflict keeps external pressures elevated. Higher US yields and Oil prices are supporting the Dollar and weighing on Asian currencies such as THB, PHP and KRW. The bank argues that only credible geopolitical de‑escalation and lower Oil or US yields can restore broader Asia FX stability, with CNY resilience providing some regional anchor.

Asia currencies pressured by external shocks

"We maintain a defensive stance on Asia FX amid ongoing uncertainty surrounding the US-Iran conflict. In the absence of credible de‑escalation and normalization of energy flows through the Straits of Hormuz, elevated oil prices and higher US yields are likely to keep the USD supported, while oil‑importing Asian currencies remain vulnerable."

"For Asia FX, external pressures are still dominant. Higher US yields and elevated energy prices have pushed several Asian currencies to fresh lows versus the USD since the conflict began. THB (‑4.8%), PHP (‑4.1%), and KRW (‑4.1%) have been among the weakest performers, reflecting sensitivity to oil prices and risk sentiment."

"Inflation risks across Asia remain asymmetric to the upside, driven by energy prices and the risk of second‑round pass‑through into transportation and food costs. This is particularly relevant given high food CPI weights in regional economies such as Thailand, India, Vietnam, and Philippines (>30% weight)."

"Any credible signs of de‑escalation, such as a reopening of Hormuz or a clearer pathway toward ending the conflict, would be a key catalyst for reassessment. For now, resilience in CNY remains a notable anchor for the region."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)