The South Korean won dipped more than 1.5 percent to its weakest level in nearly four years on Monday, while the Malaysian ringgit fell a percent to a near nine-month low as the US dollar rose broadly. The dollar inched up against major currencies and hit a two-year high against the sterling after data last week indicated Britain grew a mere 0.2 percent in the second quarter, its worst quarterly performance since the second quarter of 1992.
However, several analysts said they expected the recent dollar rally to fizzle out soon due to persisting worries over problems at US government sponsored enterprises Fannie Mae and Freddie Mac. "I see the dollar in a near-term consolidation phase. Technically, the market has already sharply increased dollar longs, and concerns over the GSEs (government sponsored enterprises) are streaming back," said Yen Ping Ho, a strategist at J.P. Morgan Chase Bank in Singapore.
Although the expected US dollar easing would lighten pressure on the Asian currencies, persistent anxieties over growth would continue to plague regional currencies, analysts said. "We do think that growth concerns will keep currencies under pressure, especially in the pro-cyclical open economies, including the Singapore dollar and the Malaysian ringgit, and also where fundamentals are weak, such as the Indian rupiah and South Korean won," Ho said.
The ringgit extended early losses, falling 1 percent to 3.3755 per dollar, its lowest since November, and traders said domestic political uncertainties sat heavily on the currency.
"The dollar-strength across the board and the Anwar issue is pushing the ringgit weaker," a trader in Kuala Lumpur said. Malaysia's de facto opposition leader Anwar Ibrahim vies for a seat in parliament at a by-election this week. The former deputy premier faces a sodomy charge and has been accused by the ruling coalition of vote-buying.
In the latest events on Monday, the opposition alliance claimed its supporters had been culled from voter lists ahead the by-election on Tuesday. Another trader in Malaysia said the ringgit should find support at 3.38 against the dollar and expected the authorities to intervene if the local currency weakened beyond that level.
Malaysia's central bank is due to review its interest rate policy later on Monday, with half of 14 analysts polled by Reuters expecting a rate rise while the other half predicting steady rates.
The South Korean won slipped 1.6 percent to 1,079.7 per dollar, its weakest since November 2004, as investors grew more worried over the health of the economy and recent foreign selling of local stocks. Foreign investors sold a net of more than $1 billion worth of South Korean shares last week alone and are expected to convert the proceeds into dollars over the coming days.
Similarly, the Singapore dollar hit its weakest since February 14, inching down 0.9 percent to 1.4205. Singapore's trade minister said on Monday that a stronger Singapore dollar could have a dampening effect on the country's exports, and there was therefore a limit on the extent of currency appreciation that the central bank could allow. "Our US dollar/Singapore dollar forecasts are now at 1.40, 1.40 and 1.45 on 3, 6 and 12-month horizons," analysts at Goldman Sachs said in a note. Markets in the Philippines were closed for a holiday.