Most emerging Asian currencies fell on Friday on rising risk aversion, with the Korean won and Philippine peso dropping the most as investors were unnerved by fiery rhetoric between the United States and North Korea. US President Donald Trump warned the reclusive communist country to stand down on its threat to strike the US Pacific territory of Guam saying it would prompt "an event the likes of which nobody's seen before" after Pyongyang stepped up its threats against the United States.
"This situation is beginning to develop into this generation's Cuban missile crisis moment, with recent leaked intelligence reports alleging that North Korea now has miniaturised its nuclear warheads, which extends the range of its missiles, and potentially brings US targets into reach," ING's chief Asia economist Robert Carnell said in a research note. "While the US President insists on ramping up the war of words, there is a decreasing chance of any diplomatic solution."
President Trump proclaimed that China, being North Korea's strategic trade partner and ally, should step in and stated that "I think China can do a lot more, yes...and I think China will do a lot more." A Chinese state-run newspaper said China should embody a neutral stance in the situation if North Korea attacks first but added that if the United States tries to overthrow the North's government, China will stop them.
The Chinese yuan fell 0.3 percent and is poised for its steepest one-day drop in nearly seven months. The won slipped up to 0.5 percent on its third day in the red. Data showing import prices in South Korea in July grew at their fastest pace in three months failed to add cheer.
Amid the escalating geopolitical tension, the yen headed for a fourth-day of gains. The yen has been broadly perceived as a safe haven currency because Japan is the world's biggest creditor country and investors there have tended to repatriate funds in times of crisis.
Despite the current preoccupation with risk aversion, Emmanuel Ng from OCBC Research, said: "Beyond a tipping point, the yen may be expected to lose its safe haven status if US-North Korean tensions continue to escalate." The Philippine peso was on track for its 5th day of decline, dropping as much as 0.6 percent to its weakest since August 2006.
The currency is headed for its worst week since June 2013. The Philippine central bank said on Friday it was "constantly monitoring" developments in the foreign exchange market for any excessive volatility. "We're constantly monitoring peso developments for excessive short-term volatility not consistent with underlying economic fundamentals," Bangko Sentral ng Pilipinas Governor Nestor Espenilla told reporters.
The Singapore dollar steadied on Friday after data showed the city-state's economy grew 2.2 percent in April-June, way above analysts estimates of 0.5 percent suggesting a balanced recovery for the trade-reliant economy. Singapore and other Asian economies which are highly dependent on trade have gained a big boost this year from an improvement in global demand, particularly for electronics products and components such as semiconductors. The currency is down 0.2 percent for the week and is on track for its second-straight week of declines.