Asian currencies fell on Thursday, retreating from multi-year highs struck this week after a closely watched US Treasury report stopped short of naming China as a currency manipulator.
The report on currency practices released on Wednesday was seen as a slight negative for Asian currencies, which have benefited from talk that increased international pressure will encourage China to hasten the pace of appreciation in the yuan.
Some Asian currencies, such as the yen and the Singapore dollar, are seen as proxies for the yuan and so tend to be influenced by the outlook for the Chinese currency.
Dealers said the dollar was also supported by Wednesday's Federal Reserve's policy statement, which was a touch more hawkish than the market had anticipated.
The Fed raised its key rate a quarter of a percentage point to 5 percent, as expected. It said it may need to raise rates further to contain inflation, but further tightening would increasingly depend on the economic outlook.
"The Treasury report has given traders a good excuse to take profits as Asian currencies have had a good run this week," said Tim Condon, head of research at ING. "Markets had also been a bit aggressively priced ahead of the Fed, expecting it to give a strong signal about a pause."
The South Korean won fell about 0.7 percent from Wednesday's domestic close to about 936 per dollar, below Monday's 8-1/2 year high at about 927 per dollar.
The Taiwan dollar eased to 31.48 per US dollar from Wednesday's peak of 31.325 per dollar, the highest level in just over 10 months.
The yen weakened to the day's low of 111.48 against the dollar - well below an eight-month high hit on Wednesday at about 110.10.
The Singapore dollar eased to 1.5720 per US dollar, down about 0.8 percent from an 8-1/2 year peak hit overnight at about 1.5595.
The Philippine peso set its lowest level in almost two weeks at 51.685 per dollar and the Thai baht hit a 1-week low at 37.84.
"Dollar/yen has moved higher and that is what we are responding to," said a Bangkok trader. "We could test the 38 level."
Despite a softer tone for Asian currencies, any losses would be short-lived and overall bullish sentiment towards the regionals remained intact, traders said.
In the offshore yuan non-deliverable forward (NDF) markets, investors pared back expectations of an appreciation in the yuan in the coming months after the US Treasury report.
The one-year NDF priced the yuan as low as 7.68 per dollar, compared with Wednesday's high of 7.67 per dollar. It prices in a 4.3 percent appreciation in the yuan in a year.
The yuan has firmed about 1.3 percent since last July, when it was revalued by 2.1 percent to 8.11 per dollar and freed from a dollar peg to float within managed bands.
Many US critics argue that Beijing keeps the yuan artificially weak, giving China an unfair trade advantage.
But analysts say that since the immediate pressure on China to let the yuan appreciate some more had subsided, the pace of currency appreciation may paradoxically speed up.
"Nobody likes to be told what to do and at the same time China does not want to be seen in an unfavourable light either," said ING's Condon. "In the near-term, Beijing could restore the rapid pace of appreciation that we saw in February.
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