A key tension exists for Asian FX. China's central bank is keeping the Yuan stable, providing an anchor for the region. Simultaneously, weak Chinese stocks are driving negative risk sentiment. This forces regional currencies into a difficult choice of which signal to follow, leading to uncertainty.

Despite official statements against rapid currency depreciation in Japan and Korea, policymakers likely view a weaker currency as a beneficial stimulus. With negative output gaps and competition from China, the goal is not to reverse the trend but to manage its pace to avoid market disorder and US Treasury scrutiny.

While the idea of US growth re-acceleration is driving dollar strength, it's not the only story. Recent positive surprises in European PMI data and upgraded Chinese GDP forecasts suggest broader global growth resilience. This breadth should help cap the US dollar's rally and may promote weakness against other currencies.

The European Central Bank is not passively letting the euro's influence grow; it's actively working to enhance its global standing. The goal is to position the euro as a significant reserve currency in an emerging multipolar monetary system, competing with the US dollar and China's yuan.

China's central bank is flooding its market with liquidity not just for stimulus, but to bolster its financial system against capital flight through stablecoins. This defensive move aims to prevent citizens from bypassing capital controls, which the government perceives as a major threat to its monetary sovereignty.

China's trade surplus is on track to exceed $1.2 trillion, a scale unprecedented in modern peacetime history. This massive imbalance, driven by a strategy of import substitution, raises critical questions about whether the global economy can absorb these surpluses without significant political and economic backlash.

China deliberately maintains an undervalued renminbi to make its exports cheaper globally. This strategy props up its manufacturing-led growth model, even though it hinders economic rebalancing and reduces the purchasing power of its own citizens.

The upcoming US-China summit is expected to produce optics over substance. More importantly for traders, the FX market lacks a clear playbook for any outcome. The People's Bank of China (PBOC) has firmly anchored the Yuan, removing any 'trade war risk premium' from the currency and rendering the event largely untradable for FX.

As China's domestic growth slows, it is flooding the world, particularly Europe, with cheap exports. This acts as a powerful disinflationary force that may compel the European Central Bank (ECB) to cut interest rates sooner than anticipated, regardless of their current hawkish rhetoric.