Most emerging Asian currencies slid on Thursday as US Treasury yields and the dollar rose after an uptick in inflation, while a modest expansion in China's factory activity failed to ease concerns over slowing growth. Regional currencies also came under pressure from worries about the health of the European banking sector after media reported that 11 euro zone banks had failed stress tests run by the European Central Bank.
US consumer inflation rose 1.7 percent in the 12 months through September, reducing expectations that the Federal Reserve might delay interest rate hikes next year. The South Korean won fell as President Park Geun-hye's raised concerns about the weak yen's impact on local exporters. The comments raised alertness to possible intervention by the foreign exchange authorities to stem the won's appreciation.
Indonesia's rupiah eased as President Joko Widodo failed to finalise his cabinet on Wednesday. Emerging Asian currencies marginally recovered earlier losses after the flash HSBC/Markit China manufacturing purchasing managers' index edged up in October to a three-month high of 50.4 from a final reading of 50.2 in September. "The Chinese economy is not firing on all cylinders and some form of easing, liquidity injection or stimulus is probably needed," said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur.
A strong dollar will continue to put pressure on emerging Asian currencies, he said. "Dollar shorts that were in place since the retrace on October 15 will need to start replenishing their books with the greenback." The won eased as Park again raised the yen's weakness as a challenge for the local economy, the second time this month she has specifically addressed the currency issue.
In the face of these concerns, the South Korean currency stood at 9.8371 to the yen, slightly weaker than the previous close of 9.8247. South Korean and Japanese companies compete head-on for a similar group of products on major markets around the world, notably for cars and electronics goods, and policymakers in Seoul are concerned the yen's steep decline would give the Japanese exporters a pricing edge. The rupiah fell as Indonesia's anti-corruption agency on Wednesday rejected eight cabinet candidates proposed by Widodo.
The rejection underlined the challenge the new president is facing in fulfilling his election promises of a government free from graft. The official Jakarta Interbank Spot Dollar Rate (JISDOR), which the central bank launched last year in an effort to manage exchange rate fluctuations, was fixed at 12,034 rupiah per dollar, weaker than Tuesday's 12,026.
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