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Asian currencies drop on fears of higher US rate rise

Asian currencies fell on speculation the US Federal Reserve Board will raise interest rates by more than some investors expected, attracting them to dollar-denominated assets.

Timothy Geithner, president of the Fed Bank of New York, said the US will "do what is necessary" to curb inflation.

By contrast, the central banks of Thailand and South Korea kept key rates at record lows for an 11th month to spur their economies.

With the latest comments from the Fed, "people are getting more focused on inflation and therefore higher interest rates in the US," said James Malcolm, a regional currency analyst at J.P. Morgan Chase & Co in Singapore. "The question now is, by how much will rates actually move higher" beyond an expected quarter percentage point increase.

The South Korean won slid 0.5 percent to close at 1,159.35 against the dollar in Seoul after a five-day gain of 0.9 percent, according to Seoul Money Brokerage Services Ltd. Yesterday's decline was the largest since May 20.

The Singapore dollar dropped 0.6 percent to S$1.7139, its biggest slide in almost a month. The New Taiwan dollar fell 0.3 percent to NT$33.53, according to Taipei Forex Inc.

A gain in the benchmark US rate may boost the appeal of dollar bank deposits and bonds over those in Asian currencies.

The Fed policy makers, who will meet on June 29 and June 30, may decide to raise rates by half a percentage point, said Kim Jin Gon, a currency trader in Seoul at ABN Amro Bank NV.

The US will increase rates from a 45-year low at a faster pace if inflation measures "break out" from the current pace, said Fed Bank of Kansas City President Thomas Hoenig.

Elsewhere in Asia, the Philippine peso declined 0.2 percent to 55.795, according to Bankers Association of the Philippines.

The Thai baht fell 0.3 percent to 40.64 and the Indonesian rupiah traded at 9,410 from Wednesday's 9,285. India's rupee weakened 0.1 percent to 45.0375.

Expectations that quickening US economic growth will raise demand for Asian exports may lure some global investors to the region, said traders such as Peter Soh, Singapore-based managing director of foreign exchange at DBS Group Holdings Ltd.

The US economy, which buys the bulk of Asia's exports, grew at an annual 4.4 percent in January through March, faster than the initially reported 4.2 percent and the fourth quarter 4.1 percent rate, the Commerce Department said last month.

"Asia has a good growth story," said Soh of DBS, Southeast Asia's biggest bank by assets. "If the US is doing well, Asia will also do well."

Current-account surpluses in Asian countries including South Korea and Taiwan may also make their assets more attractive, he said. The US ran a record US$46 billion trade deficit in March.
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