Asian currencies were firmer on Monday, with the Korean won leading the pack, after unexpectedly weak US economic data soothed fears of a near-term monetary tightening there and caused the yen and euro to rally.
Still, the pace of gains in the yen, Singapore dollar and other Asian currencies was unhurried and reflected investor caution ahead of a Group of Seven meeting on the weekend and US Federal Reserve Chairman Alan Greenspan's testimony on the economy on Wednesday.
Some analysts said an appreciation in Asian currencies could be derailed in the longer run by any steep rise in US rates and the threat of slower growth in China.
"Away from the short-term position squaring that has occurred on bullish Asian currency views, there are two real risks," Lehman Brothers said in a note.
"The first is whether Fed tightening derails the Asian equity rally and the constant inflow of equity capital that has supported it."
"The second risk to Asian currencies is the building signs of a slowdown in China, the region's engine of growth for the past few years," Lehman's report said, adding that it was however too early to be worried about China.
The yen hovered around 108 per dollar, the dollar still up three yen from last week's lows.
The Singapore dollar remained around 1.6770/80 per dollar, up about a cent from last week's lows, while the Taiwan dollar settled on the firmer side of 33 per dollar.
The Thai baht was in a range of 39.30 to 39.40 per dollar, up a percent from last week's trough.
Last week's consumer sentiment and industrial production data in the United States was weaker than markets expected, and there was an easing of optimism over the economy, which had driven up the expectations of the Fed hiking rates sooner.
After comments by Fed Governor Ben Bernanke and Richmond Federal Reserve Bank President Alfred Broaddus, analysts said markets were preparing for Greenspan too to be cautious in his statements and to play down the chances of rate hikes.
"We've already had a flag on what Greenspan is going to be talking about," David Simmonds, markets strategist with Royal Bank of Scotland, said.
Simmonds said the Fed might shift its view on inflation to suggest that the risks between inflation and disinflation were balanced if not tilted toward inflation, but it would still convey patience on monetary policy.
Analysts said the G7 meeting would probably be a non-event for currency markets, given the perception that most Asian countries were allowing their currencies to rise to ward off external inflationary pressures.
"There will be a less obsessive focus on currencies, although China will be discussed," Simmonds said.
The Korean won was traded around 1,153 per dollar, a gain of almost 10 won since Friday. It has risen 2.5 percent in two months, prompting speculation that the authorities have moderated their won-selling intervention.
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