The Thai baht hit its highest level in more than a year on Wednesday, boosted by hopes of an end to a political crisis in Thailand as Thaksin Shinawatra stepped down as prime minister. Other Asian currencies were also firmer.
Expectations US interest rates may not rise much more while rates in Europe rise further, accompanied by a rise in the Chinese yuan to a new post-revaluation high, set the backdrop for fresh Asian currency gains.
The Malaysian ringgit hit a new eight-year peak, the Singapore dollar rose to its highest level in more than seven years and the South Korean won set its strongest level in almost 8-1/2 years.
The Thai baht hogged the market spotlight. It was the day's best-performing unit, firming more than one percent, on optimism about an end to months of political turmoil.
A government spokesman said on Wednesday that Thaksin will take "a rest" and hand over his post to Deputy Prime Minister Chidchai Vanasatidya. Thaksin said on Tuesday he would resign to defuse a political crisis.
The baht rose as far as 38.23 per dollar, its strongest level since March 2005.
Dealers in Bangkok said that while the latest political developments were positive for the baht, a return to political stability was not yet guaranteed and that could leave the currency vulnerable in the medium term.
"There is a relief that the protests, which were focused on Thaksin, will now die down and the fear of violence has also dissipated," said Sean Callow, a currency strategist at Westpac.
He said political uncertainty would remain though, partly because a protest vote at Sunday's snap election left 39 seats empty in parliament and these must be full for a new prime minister to be elected.
"This strikes us as far from ideal for a new government to make any decisions on needed economic reform," Callow said.
Optimism about Thailand's economic outlook and the strength of Asia's currencies this year had helped cushion the baht from the political troubles.
The currency has firmed more than seven percent this year, making it the best-performing Asian currency after the Indonesian rupiah.
"People think the crisis will be over soon, but I'm not so sure," said a trader in Singapore.
"The political situation is not so good for the economy. What Thaksin has done as prime minister has bought the country out of the doldrums but the market thinks differently for now."
The Singapore dollar rose as high as 1.6020 per dollar, up 0.75 percent from late in Asia on Tuesday, and its strongest level since late 1998.
Dealers said speculation over further yuan and ringgit strength as well as expectations for monetary tightening at next week's central bank policy review bolstered the Singapore dollar.
"The Sing dollar is following the ringgit as Malaysia is one of Singapore's main trading partners and the ringgit has been rising sharply," said another trader in Singapore.
"Also, the market is expecting the MAS (Monetary Authority of Singapore) to tighten monetary policy next week so this is pushing up the Sing. Asian economies generally are doing well and this is a factor too."
Dealers suspected the South Korean and Indonesian central banks had intervened in the market to stem sharp gains in their currencies. This did not stop the won from firming to a high of 956.2 per dollar.
The Indonesian rupiah matched Tuesday's 16-month high of about 8,970 per dollar before retreating.
"Dollar/rupiah sold off this morning, then from midday we saw lots of bids from state banks, which may have been on behalf of the central bank," said a trader in Jakarta.
Markets in Taiwan and Hong Kong were closed for a holiday.
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