Asian Currencies on the Back foot After ECB Decision

Asian currencies had their biggest weekly drop in more than a month as demand for the dollar rose on the widening interest-rate gap with the euro.

The Bloomberg-JPMorgan Asia Dollar Index fell 0.2 percent this week in the steepest drop since the period through Aug. 1. South Korea’s won and Malaysia’s ringgit led losses after an unexpected cut in the European Central Bank’s benchmark rates. Improving U.S. data are increasing the odds the Federal Reserve will raise borrowing costs next year.

“The U.S. dollar strength has spilled over in emerging Asian currencies,” said Jonathan Cavenagh, a Singapore-based foreign-exchange strategist at Westpac Banking Corp. “The strengthening U.S. economy is creating expectations that U.S. rates will rise sooner rather than later.”

The ringgit fell 1 percent this week to 3.1825 per dollar as of 5:18 p.m. in Kuala Lumpur, data compiled by Bloomberg show. The won fell 1 percent to 1,024.25, Indonesia’s rupiah lost 0.5 percent to 11,755 and the Thai baht dropped 0.4 percent to 32.081. The Bloomberg Dollar Spot Index tracking the currency against 10 major peers touched a 13-month high.

ECB President Mario Draghi lowered the benchmark refinancing and deposit rates yesterday to 0.05 percent and minus 0.2 percent, respectively, weakening the euro 1.6 percent in the biggest drop since November 2011.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza