New Taiwan Dollar surges below 30! Will the US Dollar rebound? Complete analysis of the 2025 exchange rate trend

From Panic to Celebration: Why Has the TWD Suddenly Reversed Its Strength?

Do you remember a month ago when the market was worried about the New Taiwan Dollar (TWD) depreciating to the 34-35 range? In just 30 days, the situation has completely flipped. Recently, the TWD has staged a jaw-dropping appreciation rally — a single-day increase of 5%, the largest single-day gain in 40 years, with the exchange rate even reaching as high as 29.59, directly breaking the psychological barrier of 30.

How fierce is this rally? Within two trading days, the TWD has surged nearly 10%, and trading volume in the foreign exchange market has hit the third-highest in history. In comparison, other Asian currencies during the same period performed relatively modestly — the Singapore dollar rose 1.41%, the Japanese yen 1.5%, and the Korean won 3.8%, but none matched the extraordinary rise of the TWD.

As a typical export-oriented economy, Taiwan’s net foreign investment accounts for 165% of GDP, making its economy highly sensitive to exchange rate fluctuations. Facing such intense volatility, top government officials have urgently stepped in to soothe the market — the President issued a statement, and the Central Bank held a press conference to clarify that there was no intervention in the forex market. Yet, market sentiment remains volatile.

Three Major Drivers Behind the TWD Appreciation: Policies, Dilemmas, and Market Panic

Policy Incentives Kickstart the Appreciation

U.S. President Trump announced a 90-day delay in implementing reciprocal tariffs, which became the trigger for the TWD’s appreciation. The market quickly formed two main expectations: global buyers would rush to purchase Taiwanese goods, boosting exports; simultaneously, the International Monetary Fund (IMF) unexpectedly raised Taiwan’s economic growth forecast, and the Taiwan stock market performed remarkably well. These positive news flows attracted massive foreign investment, fueling the first wave of TWD appreciation.

The Central Bank Faces Political and Diplomatic Challenges

Although the Central Bank issued an emergency statement, it did not directly address the most concerning issue — whether U.S.-Taiwan negotiations involved exchange rate clauses. In fact, the Trump administration’s “Fair and Reciprocal Trade” plan explicitly emphasizes “currency intervention” as a review focus, putting the Central Bank in a dilemma: intervention might be accused of currency manipulation by the U.S., but not intervening could fail to curb the appreciation pressure.

Taiwan’s trade surplus in the first quarter reached $23.57 billion, up 23% year-on-year, with the surplus against the U.S. soaring 134% to $22.09 billion. Without Central Bank intervention, such a trade structure would impose enormous upward pressure on the TWD.

Financial Institutions’ Collective Hedging Operations

A UBS research report pointed out that this abnormal volatility exceeds what traditional economic indicators can explain. Large-scale forex hedging by Taiwanese insurers and exporters, coupled with concentrated unwinding of TWD financing arbitrage trades, has amplified this exchange rate movement. UBS warns that restoring forex hedging to trend levels could trigger about $100 billion in USD selling pressure — equivalent to 14% of Taiwan’s GDP.

The Financial Times further notes that Taiwanese life insurers hold up to $1.7 trillion in overseas assets (mainly U.S. Treasuries) but have long lacked sufficient currency hedging measures. The reason is that “in the past, the Central Bank could effectively suppress TWD appreciation,” but this time, it faces unprecedented constraints.

Will the USD Rally Back? Four Future Exchange Rate Outlooks

The Appreciation Ceiling: Difficult to Break the 28-Per-Dollar Level

Although the market expects U.S. pressure for the TWD to continue appreciating, most industry insiders believe that reaching 28 per USD is highly unlikely. Most analyses suggest the TWD’s appreciation has approached its limit.

Assessing Rationality with Valuation Models

The BIS’s real effective exchange rate (REER) index is set at 100 as the equilibrium point. As of the end of March:

• The USD index is about 113 → indicating a significant “overvaluation”
• The TWD index remains around 96 → “reasonably undervalued”
• The JPY and KRW indices are 73 and 89 respectively → Asian export currencies are generally undervalued

This shows that compared to the USD, the TWD still has room to appreciate, but it’s no longer unlimited.

Regional Currencies’ Performance: Not Particularly Unique

If we extend the observation period from the recent abnormal volatility to the start of the year, we find that the cumulative appreciation of the TWD is comparable to other regional currencies:

• TWD up 8.74%
• JPY up 8.47%
• KRW up 7.17%

Although the TWD has appreciated rapidly recently, from a long-term perspective, its trend is not significantly different from regional peers.

UBS Forecast: Short-term Further Appreciation, But Limited

UBS, after considering multiple indicators, believes the TWD’s appreciation trend will continue in the short term. First, valuation models show the TWD has shifted from moderate undervaluation to about 2.7 standard deviations above fair value; second, forex derivatives markets indicate the “strongest appreciation expectation in five years”; third, historical experience suggests that such large single-day gains are unlikely to be immediately reversed.

However, UBS also warns that if the trade-weighted index of the TWD rises another 3% (approaching the Central Bank’s tolerance limit), authorities are likely to intensify interventions to stabilize volatility.

How to Find Investment Opportunities Amid Exchange Rate Fluctuations?

Advice for Experienced Forex Traders

If you have substantial trading experience, you can directly engage in short-term USD/TWD or related currency pairs to capture volatility. Alternatively, you can use derivatives like forward contracts for arbitrage or hedging to lock in appreciation gains.

Three Key Principles for Novice Investors

For those new to forex trading aiming to capitalize on recent volatility, keep these principles in mind:

First, start with small amounts to test the waters — avoid impulsively chasing highs or adding positions frequently, as emotional imbalance can lead to total loss. Second, many trading platforms offer demo accounts; beginners should test their strategies in a simulated environment before trading with real money. Third, always set stop-loss points to protect your capital.

Long-term Investment Strategy

If your perspective is long-term, recognize that Taiwan’s fundamentals are solid, with the semiconductor export sector continuing to thrive. The TWD may fluctuate between 30 and 30.5. However, currency positions should not be overly concentrated; it’s advisable to limit them to 5-10% of total assets. The remaining funds should be diversified into other global assets to reduce overall risk.

For steady forex gains, low-leverage trading of USD/TWD is more rational. Also, closely monitor the policies of the Taiwan Central Bank and the latest developments in U.S.-Taiwan trade negotiations, as these are key variables influencing the exchange rate.

Additionally, avoid putting all your eggs in one basket — consider investing in Taiwanese stocks or bonds as well, so that even if the exchange rate experiences significant swings, your overall portfolio risk remains manageable.

A Decade in Review: The Historical Context of TWD Exchange Rate Fluctuations

Over the past decade (October 2014 to October 2024), the USD/TWD exchange rate has fluctuated between 27 and 34, with an amplitude of about 23%. In comparison, the Japanese yen, often seen as a safe-haven currency, has experienced a 50% fluctuation (from 99 to 161), twice that of the TWD. Since Taiwan’s interest rates have not varied significantly, the exchange rate movements are mainly driven by U.S. Federal Reserve policies.

From 2015 to 2018, amid China’s stock market crash and the European debt crisis, the Fed slowed its quantitative tightening and resumed quantitative easing, strengthening the TWD. After 2018, as the Fed shifted to rate hikes to shrink its balance sheet, the COVID-19 pandemic struck in 2020, prompting the Fed to double its balance sheet from $4.5 trillion to $9 trillion and cut interest rates to zero.

In an environment of dollar depreciation and abundant liquidity, the TWD surged, even touching 27 per USD. But since 2022, with runaway U.S. inflation and aggressive rate hikes by the Fed, the dollar rebounded, and the TWD exchange rate adjusted accordingly, maintaining a relatively narrow range.

Looking at a longer cycle since 2013, the Fed’s three rounds of quantitative easing and subsequent tightening caused capital flows to fluctuate. It wasn’t until September 2024, when the Fed ended its rate hike cycle and began cutting rates, that exchange rate volatility re-emerged.

Summing up ten years of experience, a “psychological barrier” of 30 has become widely recognized — most investors consider USD below 30 to be a good buy, and above 32 to be a sell. For long-term currency investment, this can serve as an important reference.

Final Reminder

The recent strength of the TWD is indeed eye-catching, but investors should remain rational. Understanding the causes of exchange rate fluctuations, assessing your own risk tolerance, and setting reasonable stop-loss mechanisms are key to long-term survival in the forex market. Before chasing short-term volatility, ask yourself: can you afford to lose this money? Is your trading strategy thoroughly tested? Only if the answers are all yes, should you consider entering the market.