Asia's central banks face a formidable challenge: An ascendant U.S. dollar

Central banks in Asia face a catch-22 in 2025.

A relentless rise in the U.S. dollar has sent Asian currencies such as the Japanese yen, South Korean won, Chinese yuan and the Indian rupee reeling to multi-year lows against the greenback.

While a cheaper currency could in principle make exports competitive just as President-elect Donald Trump threatens to impose tariffs, central banks in Asia would need to assess its impact on imported inflation and avert speculative bets on a sustained weakness in their currencies that could complicate policymaking, analysts said.

The U.S. dollar has sharply appreciated since Trump won the 2024 presidential election, rising about 5.39% since the election on Nov. 5 stateside.

Part of the reason behind the U.S. dollar strength is the policies Trump had promised on the campaign trail, including tariffs and tax cuts, which are seen by economists to be inflationary.

Federal officials at their December meeting expressed concern about inflation and the impact that President-elect Donald Trump's policies could have, indicating that they would be move slower on interest rate cuts because of the uncertainty, minutes released Wednesday showed.

The reassessment of the Fed's monetary policy outlook has widened the yields gap between U.S. and several Asian bonds.

This interest rate differential has dimmed the allure of assets with lower yields, sending major Asian currencies lower and prompting some central banks including the Bank of Japan and the Reserve Bank of India to intervene.

James Ooi, market strategist at online broker Tiger Brokers told CNBC that a strong U.S. dollar would make it more difficult for Asian central banks to manage their economies.

A stronger U.S. dollar is likely "to pose challenges