Asian currencies surged across the board, is the "Mar-a-Lago Agreement" really in place?

In early May, Asian currencies experienced a rare collective surge, with the New Taiwan Dollar soaring 6.5% in two days. In addition to major life insurance companies in Taiwan collectively hedging their dollar exposure, there is heated discussion in the market that the trade agreement between Taiwan and the United States may include terms to strengthen the Taiwan Dollar's exchange rate and reduce its competitiveness, which has also intensified the Taiwan Dollar's jump.

So, is a behind-the-scenes version of the "Mar-a-Lago Agreement" really brewing?

According to reports from the Chase Trading Desk, despite various market rumors, JPMorgan Chase believes in its latest foreign exchange strategy weekly report that the weakness of the dollar is not due to some coordinated agreement, but is driven by many changes in fundamentals, such as the downward revision of U.S. economic growth expectations, heightened concerns about stagflation from trade conflicts; controversies over the independence of the Federal Reserve; the simultaneous rise in U.S. term premiums and decline in the Federal Reserve's terminal interest rates; and Germany's shift towards loose fiscal policy, which supports European capital markets.

In this context, the attractiveness of dollar assets declines, and funds naturally flow to other markets.

Additionally, JPMorgan Chase stated that the market generally believes there is another strong driving force behind the strong Asian currencies—the massive dollar assets accumulated from years of trade surpluses are beginning to flow back, creating strong foreign exchange hedging pressure.

Therefore, in this context, although the Central Bank of Taiwan has publicly clarified twice that "the U.S. Treasury has not pressured for local currency appreciation," speculation in the market continues.

Why does the market firmly believe there is an agreement?

The "Mar-a-Lago Agreement" originally referred to Trump's strategy of lowering the dollar and boosting the currencies of exporting countries through multilateral means. Although this concept was never formally implemented, the recent abnormal fluctuations in Asian currencies have reignited this topic.

For example, the South Korean Finance Minister recently acknowledged that they would engage in "working-level consultations" with the U.S. Treasury on exchange rate issues; meanwhile, the Central Bank of Taiwan unusually issued a statement after the appreciation of the New Taiwan Dollar, stating that "it has not been pressured by the U.S." These vague responses have instead increased the market's speculation.

More critically, the market generally believes that this round of exchange rate movements is "unusual." JPMorgan Chase pointed out that such a surge in the New Taiwan Dollar is almost impossible without policy acquiescence. Moreover, foreign exchange markets in various Asian countries have long been dominated by regulatory authorities, so the saying "there's no smoke without fire" is not unfounded in this context.

Furthermore, unlike the Plaza Accord of 1985, current Asian countries (especially export-oriented economies) have accumulated a large amount of dollar assets. In this case, governments do not need to directly sell dollars to intervene; they can promote currency appreciation simply by "window guidance," increasing the hedging ratios of enterprises or requiring them to convert part of their dollar income into local currency.

Experts from BNP Paribas commented on this:

Although no economy would formally admit that currency valuation is the focus of negotiations, market expectations indicate otherwise. Given that the Mar-a-Lago Agreement emphasizes that the overvaluation of the dollar is the fundamental cause of the U.S. trade imbalance, this point is particularly noteworthy

Asia's Massive Dollar Assets Become a Key Variable

The market generally believes that behind the strong Asian currencies lies another powerful driver—the massive dollar assets accumulated from years of trade surpluses are beginning to flow back.

According to JP Morgan, Chinese exporters alone hold assets ranging from $400 billion to $700 billion, along with the net international investment position surplus of other Asian exporting countries, creating significant potential for repatriation and foreign exchange hedging pressure.

In addition, China's recent adjustment of the fixed exchange rate of the dollar to the yuan is also seen as an important policy signal, removing obstacles for the widespread appreciation of Asian currencies.

Although there is still no official conclusion on whether the "Mar-a-Lago Agreement" exists, the rise of Asian currencies has already stirred ripples in the capital markets. Under the intertwined influences of geopolitical factors, macro policies, and market expectations, an invisible "currency storm" may be forming