High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/3b19ad18-debb-11e0-a228-00144feabdc0.html#ixzz1Xw00HVDf
Emerging market currencies came under pressure on Wednesday as fears over the escalating crisis in the eurozone and worries over global growth undermined investor confidence.
The South Korean won was the biggest casualty, dropping 2.6 per cent to Won1,104.95, its biggest one-day fall in more than a year, as traders in Seoul returned after an extended holiday over the weekend.
“Emerging market currencies are finally reacting to global risk aversion, reduced liquidity, slower growth and contagion of the European crisis,” said Kit Juckes at Société Générale.
“This is a new chapter in this crisis, one in which geographical location is no longer a source of safety.”
The Indonesian rupiah, the best performing Asian currency this year, also suffered, dropping 1 per cent to Rp8,715 against he dollar, while the Malaysian ringgit dropped 0.7 per cent to M$3.0770 and the Thai baht eased 0.2 per cent to Bt30.22.
Lee Hardman at Bank of Tokyo-Mitsubishi UFJ said long-term secular appreciation expectations for Asian currencies against the dollar had led to the establishment of significant structural long positions, leaving them vulnerable to a sizeable short-squeeze as near-term cyclical dynamics had deteriorated.
“Until recently the Asian currencies had proved remarkably resilient to the slowdown in global growth, although building fears over the negative implications for global growth from the escalating eurozone debt crisis appear to have finally tipped the balance,” he said.
“We anticipate a modest weakening bias will persist in the near-term although long-term appreciation expectations remain unchanged.”
Other emerging market currencies also suffered, with the South African rand falling 0.8 per cent to R7.3602 against the dollar and the Hungarian forint easing 0.6 per cent to Ft209.04.
Commodity-linked currencies also came under pressure. The Australian dollar lost 0.5 per cent to $1.0258 against the US dollar, while the Canadian dollar eased 0.4 per cent to C$0.9898 and the Norwegian krone eased 0.6 per cent to NKr5.6398.
Meanwhile, the euro received a boost after the European Commission said it would present options of the introduction of eurozone bonds, a measure that could give weaker states on the periphery of the region easier access to funding.
“The commission will soon present options for the introduction of euro bonds,” said Jose Barroso, EC president.
Investors deemed the comments positive for the single currency despite German opposition to the idea.
The euro rose 0.3 per cent to $1.3722 against the dollar, climbed 0.1 per cent to £0.8682 against the pound and was 0.2 per cent higher at Y105.38 against the yen.
Elsewhere, the dollar was 0.2 per cent weaker at $1.5801 against the pound, down 0.2 per cent at Y76.80 against the yen and lost 0.3 per cent to SFr0.8768 against the Swiss franc.
