Peso takes breather after rally

Posted at 12/06/12 4:41 PM

SINGAPORE - Most emerging Asian currencies sagged on Thursday, with the Philippine peso taking a breather after a recent rally and the South Korean down in part due to jitters over potential central bank intervention.

Asian currencies slipped after a disappointing Spanish bond auction the previous day helped drag the euro off a seven-week high, giving a lift to the dollar.

Their losses were limited, however, with investors looking to budget negotiations in Washington and the U.S. Federal Reserve's policy meeting next week for direction hints, said Rob Ryan, strategist for RBS in Singapore.

"We're really treading water in many respects ahead of the Fed next week and more importantly the fiscal cliff at the end of December," Ryan said.

Many market players are optimistic that U.S. lawmakers will reach a deal before year-end to avoid the fiscal cliff of tax hikes and spending cuts that could pull the U.S. economy into recession.

Uncertainly lingers, however, and analysts say Asian currencies could fall against the dollar if worries about the U.S. fiscal crisis grow.

President Barack Obama bluntly warned Republican lawmakers on Wednesday that he would not engage in another debt-ceiling standoff and predicted a deal on the fiscal cliff could be reached in a week if his opponents would compromise on taxes.

The Fed's Dec. 11-12 policy meeting is another potential risk for Asian currencies, said Ryan at RBS, adding that the dollar could be boosted if the Fed announces monthly Treasuries purchases that fall short of market expectations.

Many economists think the U.S. central bank will announce monthly Treasury bond purchases of $45 billion to replace "Operation Twist", which expires at the end of the year.

Under Twist, the Fed bought $45 billion of longer-dated bonds a month with the proceeds from the sale of its shorter-dated holdings.

The peso slipped to 40.915 to the dollar after starting Thursday's trade at 40.850, which matched its highest level since March 2008. Since late November, the peso has touched 40.850 several times, including earlier this week.

Position squaring ahead of Friday's U.S. jobs data was likely helping to support the dollar against the peso, a trader for a European bank said.