Asia Currencies Post Weekly Loss as Europe Debt Crisis Persists

June 5 (Bloomberg) -- Asian currencies declined this week, led by India’s rupee and South Korea’s won, as concern Europe’s debt crisis will slow the global economic recovery dimmed the outlook for exports and sapped demand for emerging-market assets.

Tensions on the Korean peninsula plagued the won, the region’s worst-performing currency this year, after a North Korean diplomat in Geneva warned “a war may break out at any moment” with its southern neighbor. Central banks in Indonesia and the Philippines kept interest rates at record lows, judging inflation isn’t yet a threat. The Group of 20 gathered for a weekend meeting in South Korea to discuss the debt crisis and the euro’s slide to a four-year low.

“There’s been a very strong correlation between Asian currencies and the euro, and that is why we haven’t seen a rise in Asian currencies this week,” said Tetsuo Yoshikoshi, a senior economist at Sumitomo Mitsui Banking Corp. in Singapore. “Fiscal problems in Europe have been and will be the big theme as people are thinking about the health of European banks.”

India’s rupee dropped 1 percent this week to 46.84 per dollar, according to data compiled by Bloomberg. The won fell 0.6 percent to 1,201.80, taking its loss for the year to 3.1 percent.

South Korea’s currency yesterday dropped as much as 1.2 percent after North Korea’s deputy ambassador to the UN offices in Geneva, Ri Jang Gon, said the South’s accusation that the communist nation sank one of its warships was a fabrication. South Korean President Lee Myung Bak will urge Pyongyang to forfeit its nuclear arsenal at a security conference in Singapore, the Wall Street Journal reported yesterday.

Forecasts Cut

Morgan Stanley, in a report dated June 3, lowered its forecasts for Asian currencies, including the won and the rupee, saying Europe’s debt crisis will cool demand for exports. The won will likely strengthen to 1,175 per dollar by year-end, compared with an earlier forecast of 1,050, the report said. India’s rupee may climb to 46, compared with the previous estimate of 43.50, it said.

India’s rupee dropped this week after overseas investors pared investment in the nation’s assets amid a surge in global financial-market volatility.

The currency added to last month’s 4.3 percent slide, the biggest since February 2009, as funds based abroad cut stock holdings by $2.1 billion from a record-high $79.4 billion reached on April 30. The rupee’s one-month implied volatility rate, a gauge of expected price swings, touched a 15-month high of 18.5 percent on May 26.

‘Vulnerable’ Rupee

“The rupee is the most vulnerable currency in Asia as it is reliant on support from equity inflows,” said Daniel Hui, a currency strategist at HSBC Holdings Plc in Hong Kong. “The Indian rupee is our least favorite” currency in Asia.

Losses in Asian currencies were limited this week as reports from the U.S. showed manufacturing expanded and home sales rose, fueling optimism a recovery is gaining traction in the world’s biggest economy.

Malaysia’s ringgit bucked the trend, strengthening for a second straight week. A government report released after the close of trading yesterday showed exports climbed 26.6 percent in April from a year earlier, less than the median gain of 38 percent forecast in a Bloomberg survey of economists.

The ringgit climbed 0.6 percent to 3.2750 per dollar, according to data compiled by Bloomberg. The currency has appreciated 2.9 percent since reaching a 12-week low of 3.3675 on May 26.

Thai Economy

Thailand’s baht declined for a fourth week after Bank of Thailand Deputy Governor Bandid Nijathaworn said on June 3 that expansion in Southeast Asia’s second-largest economy will slow this quarter because anti-government protests hurt tourism. The demonstrations, which began in March and ended after a military assault last month, led to riots and left more than 80 dead.

“Some people are afraid that the European debt crisis will get worse, while the Thai economy may be affected by the political turmoil,” said Paisarn Lertkowit, a currency trader at Bangkok Bank Pcl, the country’s biggest lender.

The baht slid 0.2 percent during the week to 32.61 per dollar in Bangkok. It touched 32.63 on June 1, the weakest level since March 15.

Indonesia’s rupiah and the Philippine peso declined this week after central banks left interest rates on hold to support economic growth amid the European crisis. Bank Indonesia kept its policy rate at 6.5 percent and Bangko Sentral ng Pilipinas’s stayed at 4 percent.

The rupiah fell 0.3 percent to 9,195 per dollar and the peso dropped 0.2 percent to 46.30. Singapore’s currency slipped 0.2 percent to S$1.4034.

“Global concerns are still eclipsing the very bullish fundamental stories in Asia,” said Hui at HSBC Holdings.