Asia FX retreats on renewed tariff fears; BoK slashes rates as expected

Investing.com-- Most Asian currencies edged lower on Tuesday as investors were cautious following President Donald Trump’s reaffirmation of tariff plans on Mexico and Canada, while the Bank of Korea reduced interest rates as expected.

The US Dollar Index was 0.1% lower in Asia hours after hitting a two-month low in the precious session. Dollar Index Futures ticked slightly down.

BoK cuts rate by 25 bps as expected, won slightly lower

The BoK lowered benchmark interest rate by 25 basis points to 2.75%, aiming to stimulate domestic demand amid escalating economic challenges.

This decision aligns with market expectations and marks the third rate cut since October 2024. Concurrently, the BoK lowered its annual growth forecast to 1.5% for 2025, reflecting concerns over sluggish economic performance.

The South Korean won weakened slightly against the U.S. dollar, with the USD/KRW pair inching 0.2% higher to 1,430.78 won. The pair had fallen to 1423.97 won on Monday.

Despite the recent appreciation in the last two months, won’s performance remains influenced by external factors, including ongoing U.S. tariff disputes and global trade protectionism. These challenges have prompted the BOK to adopt a more accommodative monetary policy stance to support economic growth.

Analysts predict that the BOK may implement additional rate cuts by the end of the year to counteract these headwinds, even as the U.S. Federal Reserve is expected to make fewer adjustments.

Renewed Trump tariff threats stoke caution

President Donald Trump’s reaffirmation of imposing 25% tariffs on imports from Mexico and Canada has introduced a wave of renewed uncertainty in global markets.

The announcement on Monday has prompted a slight rebound in the U.S. dollar in early trade, which had hit a two-month low in the previous session. 

The tariffs, set to take effect on March 4, are anticipated to disrupt North American supply chains, potentially leading to increased production costs and reduced demand for Asian exports.

The Indian rupee’s USD/INRpair rose 0.3%, while the Indonesian rupiah’s USD/IDR pair gained 0.4%.

The Chinese yuan’s offshore pair USD/CNH was largely unchanged, while the Singapore dollar’s USD/SGD edged slightly higher.

The Australian dollar’s AUD/USD pair was also muted.

Bucking the regional trend, the Japanese yen’s USD/JPY pair edged 0.2% lower due to its safe-haven appeal.