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Foreign Exchange

Asian currencies rise against dollar as euro holds firm

Asian currencies rose against the US dollar on Tuesday as equities gained and investors bet that the US currency would continue to weaken amid record low interest rates and slow economic growth.

The South Korean won, the Malaysian ringgit and the Philippine peso jumped against the dollar as Asian stocks rose for the first day in five, and investors bet that recent declines reflected too much pessimism over the outlook for earnings. The won traded against the dollar at 1078.73, its highest level since June 6, up from 1085.65 previously.

The Australian dollar bucked the rising trend, paring earlier losses and trading unchanged over the day. This followed the release of Reserve Bank minutes showing that policy-makers had decided it was “prudent” to keep rates unchanged amid concern about the sovereign debt crisis in Greece. In addition, domestic data did not make a rate rise “urgent”, Australian policy-makers said. The currency was little changed at $1.0580 early in London.

“Sentiment is improved and investors have reverted to selling the dollar,” says Greg Gibbs, a currency strategist at Royal Bank of Scotland in Sydney. “The US economy is still the main focus for the currency markets.”

Home sales in the US dropped in May to the lowest level this year, a report later on Tuesday is likely to show, keeping pressure on the Federal Reserve to leave interest rates at record low levels, and to provide liquidity through its policy of reinvesting the Fed’s maturing assets back into the bond markets.

The dollar fell to $1.4372 against the euro, compared with $1.4304 late on Monday. The U.S. currency traded at 80.20 yen, from 80.25.

Earlier, the euro rose to as high as $1.4384, but pared gains after ratings agency Fitch said that any rollover of Greek debt, the softer of the options being considered, would constitute a default. The euro then rose again as Fitch said the US could be put on rating watch negative if it does not raise its debt ceiling by August 2.

“The sharp knee-jerk reactions underscore the sensitivity of markets to headline risk at present,” says RBC Capital Markets strategist Sue Trinh, in a note. “There is little to indicate that this will change any time soon.”

Some investors have bought the euro, analysts say, in the expectation that a vote of confidence for Greek prime minister George Papandreou will be passed on Tuesday. The vote comes after opposition parties rejected his call for a national unity government, as European leaders struggle to find a plan to manage the country’s €340 billion of debt.

 Korean Won spot rate

 Source: Bloomberg data
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