Yen snaps four-day rise against dollar

ASIAN CURRENCIES ROUND-UP

The yen extended its decline against the dollar, snapping a four-day advance.

The Japanese currency was at 97.78 a dollar by 9:20 am in London, from 97.33 yesterday. It also dropped to 154.12 a euro from 153.07.

The yuan traded near the highest since the end of its dollar peg on speculation the Federal Reserve will cut its benchmark interest rate by 1 percentage point, widening the yield advantage for Chinese currency assets.

The Fed's meeting today may signal whether the US central bank will keep cutting borrowing costs in coming months. China increased the rates six times last year to curb consumer prices and prevent overheating. Premier Wen Jiabao said in Beijing today that inflation is China's biggest economic problem.

"A widening interest-rate differential will put extra upward pressure on the yuan,'' said Li Tao, a foreign exchange trader at Shenzhen Development Bank. "More speculative capital will flow into China as yuan-denominated assets will become more attractive.''

The yuan was little changed at 7.0840 a dollar as of 15:36 pm in Shanghai, compared with a close of 7.0830 yesterday, according to China Foreign Exchange Trade System.

The People's Bank of China set its daily reference rate at 7.0870 today compared with 7.0815 yesterday. The yuan is allowed to trade by up to 0.5 per cent against the dollar either side of the rate.

"The yuan's reference rates this week may show the direction of the government's monetary policy after the NPC meeting,'' said Li. "If the yuan's reference rate will rise faster versus the dollar, it will indicate the government's reliance on currency revaluation instead of interest-rate hikes to curb inflation.'' Korean won rises before Fed rate move
South Korea's won rose on speculation an interest-rate cut in the US will spur demand for higher-yielding assets in the region.

Eight of the 10 most active Asian currencies rose as traders increased bets the Federal Reserve will today reduce its benchmark rate to 2 per cent from 3 per cent. The won halted 12 days of losses as the government and the central bank said they are "concerned'' about the currency's drop and pledged to take measures if needed.

"The interest-rate gap will further favor Asian currencies,'' said Hideki Hayashi, chief economist at Shinko Securities in Tokyo. "We can expect fund inflows into the region because the economy is quite solid.''

The won gained 1.5 per cent to 1,014 a dollar as of the 3 pm close of trade in Seoul, according to Seoul Money Brokerage Services. The advance was the largest since February 2005. The won has lost 8.1 per cent against the dollar this year, the most among Asia's 10 most active currencies.

Korean Deputy Finance Minister Shin Je Yoon said in a statement before trading opened that the authorities will "form a joint team'' to monitor the market. The won had the biggest decline yesterday since 1998, touching the lowest level in more than two years.

"There were some orders for the won that appear to be intervention,'' said Ko Yun Jin, a currency dealer at Kookmin Bank based in Seoul. "The amount is a bit too large to consider it exporter demand.''