Asian currencies strengthened this week as European leaders agreed on measures to ease a regional debt crisis and data suggested the U.S. housing market is recovering from a slump.
The Bloomberg-JPMorgan Asia Dollar Index rose yesterday by the most since Oct. 27 after European Union President Herman Van Rompuy said bailout conditions tied to emergency loans for Spanish banks were relaxed and regional leaders are looking at ways to bring down yields on bonds issued by Spain and Italy. India’s rupee gained by the most in three years yesterday after Prime Minister Manmohan Singh said reviving investor confidence is one of his top priorities. The currency tumbled 8.6 percent against the dollar this quarter, leading declines in Asia.
“The spike in regional currencies is just a short-term reaction,” said Amonthep Chawla, a Bangkok-based analyst at Kasikornbank Pcl. “It’s going to be a chronic debt crisis in Europe and investors will fear again that the problems are still there.”
The Asia Dollar Index climbed 0.8 percent this week to 115.22 in Hong Kong, trimming this quarter’s loss to 1.4 percent. South Korea’s won advanced 1 percent this week to 1,145.40 per dollar, the Philippine peso rose 0.7 percent to 42.16 and the Taiwan dollar advanced 0.2 percent to NT$29.90, according to data compiled by Bloomberg. The rupee jumped 2.7 percent to 55.6375, touching a one-week high of 55.6375 earlier.
Leaders of the 17 euro-area countries agreed banks can be recapitalized directly by bailout funds, rather than having aid channeled through governments, and dropped a requirement that emergency loans to Spanish lenders get preferred credit status, Van Rompuy said after 12 hours of talks ended at 4:30 a.m. in Brussels. The two-day summit concluded yesterday and Luxembourg Prime Minister Jean-Claude Juncker said “short-term measures” are being considered to bring down borrowing costs for Spain and Italy.
U.S. reports this week showed sales of new homes climbed to a two-year high in May, while housing prices declined in April at the slowest pace since November 2010. An improving real-estate market may spur spending in the U.S., the biggest buyer of Asian exports.
India’s rupee had its biggest weekly advance since October 2009, after touching an all-time low of 57.3275 per dollar on June 22. The central bank said June 25 it will raise the ceiling for foreign investment in government bonds by $5 billion and allow certain companies that earn foreign exchange to borrow abroad to repay rupee loans.
The peso jumped 3.2 percent since May, its biggest monthly gain since September 2010, as an improving economy attracted funds to the nation’s assets. Overseas investors bought $873 million more Philippine shares than they sold this month through June 29. The $200 billion economy expanded 6.4 percent last quarter, the fastest pace since 2010, and Ruperto Majuca, National Economic Development Authority assistant director general, forecast this week that second-quarter growth will be about the same.
“It’s mostly a reflection of the good economic data about the Philippines, which is tempering risk aversion caused by worries in Europe,” said Rafael Algarra, executive vice president of financial markets at Security Bank Corp. in Manila. “Most of the data, from fiscal to growth to inflation, is supportive.”
China’s yuan rose this week, trimming its biggest quarterly loss since a dollar peg ended in 2005. The currency traded at 6.3541 per dollar, 0.16 percent stronger than its June 21 close. It has dropped 0.9 percent since the end of March.
Slowing trade to the U.S. and Europe has “impacted” the yuan, Zhang Jianhua, director-general of the People’s Bank of China’s research bureau, said at a forum in Shanghai June 28.
“China’s economic data is unlikely to be impressive with lingering problems in Europe,” said Stella Lee, president of Success Futures & Foreign Exchange Ltd. in Hong Kong. “The government is trying to bolster domestic consumption but that takes time. The yuan will only rebound in the fourth quarter if the economy regains strong growth momentum.”
Elsewhere, Malaysia’s ringgit rose 0.8 percent this week to 3.1688 per dollar and Indonesia’s rupiah gained 0.1 percent to 9,430. Thailand’s baht advanced 0.1 percent to 31.74.