Middle East Conflict Fuels Inflation Fears; NT Dollar Rebounds After Dipping Below 31.7

(CNA Reporter Pan Tsz-yu, Taipei, 20th) The stalemate in the Middle East conflict and soaring U.S. Treasury yields have highlighted a sharp increase in market anxiety over inflation risks. With continuous hot money outflows, the New Taiwan (NT) dollar fell below the 31.7 per U.S. dollar mark in today's trading. However, the central bank intervened in the market late in the session, causing the exchange rate to reverse its depreciation and rise. It closed at 31.643, a slight increase of 0.7 cents. The total transaction volume in the Taipei and Yuanta foreign exchange markets exploded to a massive US$2.9265 billion. The Middle East conflict has pushed up energy prices, deepening market concerns about inflation and triggering a sell-off in U.S. Treasuries. The yield on the 30-year Treasury bond, which moves inversely to its price, once broke through 5.2%, casting a shadow over financial markets. Following a decline in U.S. stocks, Taiwanese stocks continued to narrow their deviation, fluctuating around the flat line today. The main board briefly fell below the 40,000-point mark near the close but quickly recovered. The TAIEX ended down 154.74 points at 40020.82, holding the 40,000-point level. The NT dollar opened at 31.68 against the U.S. dollar today and continued to digest outflows from consecutive net selling by foreign investors, causing the exchange rate to weaken rapidly, breaking 31.7 to a low of 31.73. However, exporters actively entered the market to sell U.S. dollars above the 31.700 level, and the central bank also intervened, allowing the NT dollar to hold the 31.6 level. Foreign exchange traders pointed out that rising inflation concerns have driven up U.S. Treasury yields. Not only has the U.S. dollar remained strong, but investors' asset reallocation has also increased recent volatility in financial markets. Additionally, to combat inflation, major global central banks are leaning towards maintaining high interest rates or even keeping the possibility of rate hikes, causing the NT dollar to adopt a depreciating trend since May. However, forex traders believe that Taiwan's central bank has always been more cautious. Without an urgent need to raise rates, it would naturally be reluctant to see the NT dollar depreciate significantly, to avoid exacerbating imported inflationary pressures. Traders further analyzed that the NT dollar continues its range-bound consolidation, with limited room for depreciation. The 31.8 level is a key short-term resistance. However, if the AI theme cools down and the Taiwan stock market corrects significantly, widening foreign capital outflows, a further weakening of the NT dollar cannot be ruled out. (Editor: Pan Yi-ching) 1150520