Asian currencies strengthened this week by the most in almost three months on speculation regional central banks will increase interest rates further to curb inflation, boosting yield premiums over developed nations.
Philippine policymakers joined China, India, South Korea, Indonesia and Thailand in raising borrowing costs this year by lifting the benchmark rate a quarter percentage point to 4.25 percent on Thursday, the first increase in more than two years.
Overseas investors bought US$793 million more Indonesian, South Korean and Thai equities than they sold in the first four days of this week, exchange data show.
“Gains in stocks and yield differentials are encouraging inflows of funds into the region, supporting the currencies,” said Shigehisa Shiroki, chief trader in the Asian and emerging-markets team at Mizuho Corporate Bank Ltd, in Tokyo.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies, gained 0.6 percent from a week earlier to 116.95 on Friday after touching 117.04, the highest level since 1997.
South Korea’s won climbed 1.1 percent this week to 1,114.20 per US dollar, India’s rupee jumped 1 percent to 44.68 and Malaysia’s ringgit rose 0.8 percent to 3.0260.
The Philippine peso completed a weekly gain after the central bank signaled further rate increases might be needed to tame inflation. The currency strengthened 0.9 percent to 43.31 per US dollar.
The New Taiwan dollar gained its most in more than three weeks, finishing the week up 0.4 percent from last week at NT$29.488.
The won touched 1,112.65 on Friday, the strongest level since Feb. 21, as foreign investors bought a net US$601 million of South Korean stocks this week through Thursday, according to exchange data.
The ringgit rose to a 13-year high and had its first weekly advance in three weeks, as a report on Friday showed consumer prices in Southeast Asia’s third-largest economy rose 2.9 percent last month from a year earlier, the most since April 2009.
Elsewhere, Indonesia’s rupiah advanced 0.6 percent for the week to 8,714 per US dollar. China’s yuan gained 0.18 percent to 6.5576 and Singapore’s currency strengthened 1.2 percent to S$1.2608.
SLUMPING POUND
The pound posted its steepest weekly decline in a month in a gauge of 10 developed-nation currencies on concern the UK recovery is stalling and that the Bank of England will wait to raise interest rates.
Sterling reached its weakest since last November versus the euro, as investors bet the European Central Bank (ECB) will raise interest rates before the its UK counterpart after ECB President Jean-Claude Trichet reiterated policymakers may increase borrowing costs next month. The currency declined against most of its major peers as data showed inflation surged and retail sales slumped amid government spending cuts.
“Interest-rate expectations have certainly been a key driver for the pound and the euro,” said Simon Smith, chief economist at FXPro Financial Services Ltd, in London. “People are still betting Trichet is still most likely to raise rates, but on the UK side, certainly after the retail sales figures, a little more doubt has crept in.”
The pound weakened 0.6 percent in the week to ￡0.8785 per euro, as of 4:35pm in London on Friday, its fifth straight week of declines. It depreciated 1.3 percent against the greenback to US$1.6030.
The euro rose 0.2 percent against the yen at 114.59 on Friday, from 114.79 on Thursday. The yen weakened 0.5 percent to ￥81.34 per US dollar on Friday, from ￥80.97 on Thursday.
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