The Philippine peso weakened to a five-month low on Monday on growing uncertainty about President Gloria Macapagal Arroyo's government, which is facing allegations of election fraud and corruption.
Record oil prices, with New York crude futures nearing $60 per barrel, added to the peso's woes and cut back gains in other regional currencies such as the Taiwan dollar and South Korean won.
The peso fell as much as half a percent to 55.76 per dollar, its weakest since January 13. It has weakened 2.4 percent this month.
Arroyo's popularity has hit record lows and family members have been accused of taking payoffs from illegal gambling sparking speculation of coup plots and mass protests.
"The biggest concern in the past few days has been political stability. The market is jittery," said Rovic de Guzman, head of currency trading at the Union Bank of the Philippines in Manila.
"It doesn't seem anything will be solved anytime soon."
He said oil importers were particularly worried since the Philippines imports all of its crude needs.
"I won't be surprised to see the biggest demand for dollars coming from oil companies to hedge their immediate requirements," de Guzman said. "That's the prudent thing to do. Not to do so would be foolhardy."
Still, Philippine economy fundamentals were stable although the peso usually comes under pressure in the third quarter as remittances from overseas Filipinos slow down.
Other Asian currencies pared back early gains as oil prices stuck near record levels in late Asian trading, worsening the outlook for Asia's trade and current account balances.
The South Korean won gained as much as a quarter of a percent to 1,007.0 per dollar before closing local trading at 1,008.2.
The Taiwan dollar closed local trading steady at 31.32 per dollar, after rising as much as 0.3 percent. Traders said regional currencies will be supported. An EU budget dispute has added to constitutional concerns to undermine the euro while a record quarterly US current account deficit has hurt the dollar.
"Europe is not in a crisis, it is in a profound crisis," said EU President Jean-Claude Juncker, after talks to agree a budget for 2007-2013 collapsed.
"Everyone's watching the euro," said Peter Soh, managing director and chief currency dealer at Singapore's DBS Bank.
"There's some buying interest for Asian currencies. It really depends on the euro."
The euro weakened to a low of 132.70 yen, compared with a high of 133.49 yen on Friday.
"With political implosion in Europe, risk still points to more trouble ahead for the euro," said Irene Cheung, head of Asian currency strategy at ABN Amro Bank, in a report.
"On a relative basis, we think that Japan presents a stronger case and will keep short euro-yen."
Data on Friday showed the US current account deficit, the broadest measure of US trade with the world, had widened to a record high $195.1 billion in the first quarter, about 6.4 percent of gross domestic product.
Worries about a ballooning current account gap had triggered the dollar's three-year decline through December 2004.
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