Asian currencies fell for a second week as the prospect of higher US interest rates and worsening conflicts in the Middle East and Ukraine boosted demand for the relative safety of the greenback.
Kiev said pro-Russia rebels shot down a Malaysian Airlines plane on Thursday, killing all 298 people on board, while Israel sent troops into Gaza as a ceasefire with Palestinian militants collapsed. The reports sparked losses in emerging market currencies and stocks, while buoying assets such as US Treasuries.
In addition, US Federal Reserve Chair Janet Yellen on Tuesday said that US borrowing costs could be raised sooner than expected should the job market keep improving.
“People are avoiding emerging market assets following the escalation of geopolitical risk in the Middle East,” said Saktiandi Supaat, head of foreign exchange research at Malayan Banking Bhd. in Singapore. “The plane crash didn’t help sentiment.”
The Bloomberg-JPMorgan Asia Dollar Index fell 0.1 percent this week to 116.09 as of 4:31pm in Hong Kong.
DOLLAR DUEL
South Korea’s won led regional currencies in losses, dropping 1 percent to 1,029.32 per US dollar, data compiled by Bloomberg show, while the New Taiwan dollar posted its biggest weekly decline in almost three months as stock inflows slowed and the plane crash boosting demand for US assets.
Overseas investors bought US$31 million more Taiwanese equities than they sold this week, the smallest purchases since May, exchange data show.
The Taiwanese currency depreciated 0.2 percent this week to NT$30.051 against its US counterpart, prices from Taipei Forex Inc show. That is the unit’s biggest weekly decline since the five days ended on April 25.
“Because of the Malaysian Airline plane crash and geopolitical risks, funds may be leaving emerging markets and returning to the US for refuge,” said Samson Tu (涂韶鈺), a Taipei-based fund manager at Uni-President Assets Management Corp (統一投信). “Foreign funds may also be leaving Taiwan as it doesn’t look like stocks are going to rise any further.”
The benchmark index has fallen 1.8 percent since closing at the highest level since 2007 on Tuesday.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, climbed 0.3 percent this week, the biggest increase since the five-day period ended on May 23.
The prospect of higher rates in the US “also had some impact on emerging market currencies,” said Ho Woei Chen, an economist at United Overseas Bank Ltd in Singapore. “Geopolitical risks are moving to the front at the moment.”
REGIONAL SLIDE
China’s currency received little support from data showing the economy expanded 7.5 percent in the second quarter from a year earlier, more than the 7.4 percent median estimate in a Bloomberg survey. The yuan fell 0.07 percent this week to 6.2080 per US dollar, China Foreign Exchange Trade System prices show.
Elsewhere in Asia, India’s rupee weakened 0.6 percent to 60.2913, Indonesia’s rupiah declined 0.2 percent to 11,618, the baht was steady at 32.151, Vietnam’s dong slipped 0.1 percent to 21,225, and the Philippine peso and Malaysia’s ringgit both gained 0.1 percent to 43.515 and 3.1835 respectively.
The ringgitt fell 0.1 percent to 3.1817 on Thursday after the jet crashed.
YEN COMES DOWN
In Tokyo, the yen weakened as demand for haven assets waned after turmoil in Ukraine and Gaza pushed the Japanese currency to the strongest level versus the euro in five months.
The yen dropped against 27 of its 31 major peers, with higher-yielding counterparts including Brazil’s real and Indonesia’s rupiah, while the euro fell below US$1.35 for the first time in five months. A gauge of the greenback dropped from a four-week high after US consumer confidence declined.
The yen fell 0.2 percent to ￥101.34 per US dollar at 5pm New York time after gaining 0.5 percent on Thursday. Japan’s currency slipped 0.2 percent to ￥137.08 per euro after earlier appreciating to ￥136.71, the strongest level since Feb. 5. It gained 0.6 percent for a second week.
The euro was little changed at US$1.3524 after reaching US$1.3491, the lowest level since Feb. 6.
The shared currency fell below US$1.35 on Friday, crossing what is seen by some dealers as the dividing line between success and failure for the European Central Bank’s attempts to boost growth, as traders speculated that so-called barrier options used to protect trading positions had been in place to shield investors against a decline to that level.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, fell less than 0.1 percent to 1,009.53 after touching 1,011.12, the highest since June 20.
CURRENT CURRENCIES
The ruble rose as Russia and Ukraine blamed each other for the downing of the plane as investigations got underway.
The ruble added 0.1 percent to 35.1425 per US dollar after plunging more than 2 percent yesterday as the US and EU imposed additional sanctions on the country.
The shekel fluctuated as Israel sent ground forces into the Gaza Strip in a military offensive aimed at stopping missiles fired by Hamas and other Palestinian militants.
The currency was little changed at 3.4284 per US dollar after rising and falling as much as 0.3 percent.
In the UK, the pound gained versus the euro this week as reports strengthened speculation that the British economy is recovering fast enough to withstand tighter monetary policy while other European economies require more stimulus.
Sterling touched the strongest level in 22 months against the 18-nation shared currency this week as data showed Britain had the fastest inflation relative to the eurozone rate in eight months.
The pound strengthened 0.4 percent this week to ￡0.7918 per euro, after touching ￡0.7889 on Thursday, the strongest level since September 2012.
Sterling on Friday slid 0.3 percent to US$1.7068 over the past five days, having appreciated to US$1.7192 on Tuesday, the highest since October 2008. The euro slipped 0.7 percent to US$1.3514.
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