The Taiwan dollar strengthened on Friday, hitting an 11-month high, as expectations of another US interest rate cut pressured the US dollar in global markets. Rising inflationary pressures in Taiwan boosted expectations of a rate rise next month, lifting the currency to an intraday high of T$32.206 to the US dollar, its highest since it touched T$32.188 on December 7 last year.
But central bank intervention to cap gains pulled the Taiwan dollar back to close at T$32.288, still stronger than Thursday's finish of T$32.308. "With the US dollar weak, the Taiwan dollar can't depreciate and with the pressure from consumer prices, it looks like the central bank will have to alter its policy on weak monetary policy and low rates," said a Taipei dealer.
The central bank often intervenes in the market to smooth out sharp fluctuations, as an appreciating Taiwan dollar can hurt the competitiveness of exports, which are the main drivers of the island's economy.
Exporters in Taiwan have also been active in selling US dollars, adding to the local currency's gains, another dealer said. Volume on the main Taipei Forex Inc exchange was a hefty US $1.640 billion, up from $1.310 billion on Thursday.
Taiwan announced this week that October consumer prices had risen 5.34 percent, prompting speculation of a central bank interest rate increase in December.
The US dollar tumbled against major currencies on Friday, hitting a 26-year low against sterling and a record low against the euro as expectations grew for more interest rate cuts from the US Federal Reserve.
The euro hit $1.4738 on electronic trading platform EBS, its highest against the dollar since 1999. On the smaller Cosmos exchange, the Taiwan dollar also rose to T$32.240 to its US counterpart, up from its Thursday closing price of T$32.299.
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