Lehman Brothers Holdings Inc said a rally in Asian currencies the firm predicted a year ago will be delayed and probably occur versus the euro instead of the US dollar.
The firm advised shifting bets on the South Korean won's advance against the US dollar to wagers on the won's appreciation versus the euro. Lehman made the recommendation two days after the Bank of Korea raised its benchmark interest rate on Oct. 11, the first increase in more than three years.
"As inflation pressures build and central banks raise policy rates, we still believe that Asian currencies will stage their long-awaited rally," wrote James McCormick, Lehman's London-based head of global currency research, in a report yesterday. "This time horizon is likely to be pushed back further, and funding in dollars is probably the wrong vehicle."
South Korea's won strengthened to 1,256.43 per euro on Friday, a gain of 0.3 percent, in Seoul. The won is up 11.7 percent against the euro so far this year. Versus the US dollar, the won is down 0.9 percent.
The Federal Reserve has lifted its target rate for overnight loans between banks 11 times since June last year to 3.75 percent. The European Central Bank, by contrast, has kept its rate at 2 percent since 2003.
Lehman, the fourth-biggest securities firm, also advised clients to keep bets on the Indonesian rupiah's advance against the US dollar. The nation's central bank may buy the currency to prevent it weakening while the benchmark interest rate of 11 percent will attract investment, the firm said.
The rupiah has gained 4 percent since sliding to a four-year low on Aug. 30. Bank Indonesia raised its benchmark rate to 11 percent on Oct. 4, the highest in more than two years and the fourth increase in nine weeks.
Lehman was among firms that last year forecast gains in Asian currencies during 2005, anticipating that China's revaluation of its currency would spark a rally in the region.
The Bloomberg JPMorgan Asia Dollar Index, which measures the performance of currencies including the won, baht, New Taiwan dollar and Singapore dollar against the US dollar is down 2.5 percent this year. The index is on track for the first decline in four years.
The index also comprises the yuan, Hong Kong dollar, Indonesian rupiah, Philippines peso, Indian rupee and Malaysian ringgit.
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