The South Korean won led overall declines in emerging Asian currencies on Friday as the central bank surprised markets by keeeping interest rates on hold and as foreign investors continued to sell stocks in the region. Asian currencies had enjoyed nearly a week of appreciation on relief that regional policymakers were taking steps to stem rising prices, with Indonesian central bank raising interest rates last Friday.
But investors started doubting their determination, especially as central banks of South Korea and Philippines held their policy rates unchanged. "Recent profit taking by the market is partly due to concern over inflation. Investors are keeping an eye on policymakers' steps on inflation. If a country is willing to fight inflation, investors are more comfortable in buying its currencies," said Perry Kojodjojo, a currency strategist at HSBC in Hong Kong.
Dollar/won rose for a third consecutive session as foreign investors continued to dump Seoul shares and on dollar demand linked to the sales. Foreign investors sold a net 615.7 billion won ($545.6 million) worth of stocks on the main exchange after reporting their biggest net stock sales in three months on Thursday. Dollar/peso reversed initial losses despite the central bank's hawkish stance on inflation. Dollar/baht edged up as foreign investors kept buying the pair amid a continued sell-off of local stocks. A Bangkok-based dealer said markets expect USD/THB to trade between 30.65 and 31.05 next week.