Asian currencies steadied on Wednesday after falling for two days, in line with the euro's moves, but markets braced for further weakness on account of reduced expectations for a Chinese yuan revaluation. The euro steadied briefly in Asian trade but soon extended a slide that began on Monday to hit a 7-1/2-month low below $1.2294 in European trading. The steep euro drop was triggered by political and economic concerns after France's rejection in a referendum of a proposed European Union constitution, and the euro was seen staying weak on Wednesday as the Dutch began voting in a similar referendum.
In Asia, the Korean won and the Thai baht were the biggest losers.
The won came within striking distance of a 100-day moving average around 1,013 a dollar, taking its decline this week to 1.2 percent, before paring losses.
The Thai baht breached key support at 40.70 per dollar. The Singapore dollar fell to 1.6710, its lowest level against the dollar since October.
Currency analysts said the dollar's euro-driven rally and the paring of bets on a change in policy for China's virtually pegged yuan had undermined regionals. Banks had to hurriedly cover their bullish Asian positions, they said.
China decided on Monday to scrap export tariffs on 81 textile products in a tit-for-tat move after the United States and Europe curbed Chinese textile exports. "One theme that continued to permeate through Asia was shorts in dollar-Asia," Westpac Bank said in a note.
"The very aggressive push back from China on trade sanctions suggests that they have little interest in responding to foreign pressure," Westpac said
The market still has a lot of positions betting on a yuan revaluation, so there was potential for Asian currencies to be sold further, it said.
Traders suspected several regional central banks had intervened.
"It seems the MAS (Monetary Authority of Singapore) has been trying to contain the Sing dollar's fall but the BoK (Bank of Korea) is leaning into the move today," a trader said, referring to talk that the South Korean authorities had bought dollars to weaken their currency.
The Philippine peso and the Taiwan dollar stood firm, the latter still underpinned by strong equity flows as players adjust positions after Taiwan's reweighting in the MSCI Emerging Markets Index on Tuesday.
"Of the top 3 performing currencies of the year - peso, won and Taiwan dollar - the weakest link of them all is won," said said Claudio Piron, currency strategist with J.P. Morgan in Singapore.
Morgan Stanley Capital International Inc, a global stock index compiler, said last year it would raise the weighting of Taiwan stocks in its emerging markets index.
Taiwan weightings in the index were raised in 2 stages. The second phase took effect on Tuesday.
Foreign funds have been pumping money into Taiwan in anticipation of the reweighting, although they turned net sellers on Wednesday.
The Taiwan dollar was quoted around 31.38/39 per dollar on Wednesday and has shed about a quarter of a percent this week.
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