KUALA LUMPUR: The foreign exchange market is experiencing renewed volatility as the Malaysian ringgit faces mounting pressure due to the resurgence of the US dollar's strength.

This development comes alongside China's increasing economic woes, with government signals indicating a potential shift towards monetary easing efforts to counteract a sluggish economy.

In just the past month, the ringgit has struggled, appearing to have stalled what many saw as a promising recovery. After gaining an impressive 2.7% against the US dollar last year, the currency is now testing its recent lows, trading at approximately 4.5130 against the greenback—representing a decline of around 0.91% since the start of 2025.

A contributing factor is the rising political and economic instability in Europe, exacerbated by China’s concerns over deflation and the ongoing weakness of the yen, which have all led to a stronger demand for the US dollar.

Financial analysts emphasize that the ringgit's fate is intricately tied to major trading partners, notably the United States and China. As Donald Trump's upcoming inauguration looms, market participants are bracing for potential shifts in trade policies and market dynamics, which could substantially influence the direction of the ringgit.

Interestingly, the recent weakness of the ringgit is part of a broader trend affecting several Asian currencies, including the Philippine peso and the Thai baht, which have also faced similar devaluation against the dollar in early 2025.

Fund managers highlight that the strengthening dollar can largely be attributed to significant rises in real interest rates in the US. Higher yields on US Treasury notes, paired with the Federal Reserve's recent stance on interest rates, have created a compelling proposition for investors seeking higher returns.

The recent surge in US Treasury yields—climbing from 1.9% to 2.26%—has elevated the dollar's allure even further, creating a widening gap with Malaysia's much lower overnight policy rate of 3%.

This dynamic suggests a rocky financial terrain ahead for those holding positions against the dollar, particularly in the context of potential trade wars that could arise from Trump's return to power, further aggravating China's economic difficulties.

As the dollar-yuan exchange rate crosses the 7.3 mark for the first time in weeks, with continued interventions from the People's Bank of China, there's cautious optimism that the Chinese economy might stabilize—albeit under challenging conditions.

The fear is that the pressures within the Asian economies may persist, especially in relation to US policy shifts post-inauguration.

Market observers are keen on upcoming US jobs data and FOMC minutes, set to be released soon, which could offer insights into the economic health of the US and a clearer picture of the Fed’s future actions.

With inflation worries looming large and trade tensions on the horizon, the stage is set for what could be a volatile year ahead in the currency market.

In summary,

brace yourself as the currency market navigates through uncertainty. The intertwining struggles of the Malaysian ringgit, the Chinese yuan, and the US dollar signal that financial strategies will face considerable turbulence in 2025. Stay informed as this evolving story unfolds, impacting economies worldwide!