SEOUL - Asian central banks took steps on Friday to calm the appreciation in their currencies as the dollar slumped to a record low ahead of a meeting of Group of Seven finance chiefs.
The head of South Korea’s central bank warned markets the authority would take action if necessary, while central banks in Singapore and Malaysia were suspected by foreign exchange traders of buying dollars to curb their currencies, which traded at decade highs.
The dollar has dropped to a record low against a basket of major currencies and against the euro in the run-up to a meeting later on Friday of the finance ministers and central bankers of the world’s richest nations.
Analyst doubt the G7 finance chiefs meeting in Washington will make a strong statement about the weakness of the dollar for fear of unsettling already jittery world markets.
“I have the impression the market prefers to stay short the dollar ahead of the G7 and the market is expecting a confirmation of the strong dollar policy as well,” said Fortis Bank’s Alvin Cheng.
“It just shows how the dollar bear market is. If there is no strong dollar policy, then expect more dollar selling,” he said.
Several Asian currencies have gained strongly against the dollar this year on the back of the region’s trade and current account surpluses and an inflow of investment money. The Indian rupee has risen more than 11 percent against the dollar since the start of the year.
But several Asian central banks have intervened to buy dollars in recent months as their currencies reached their highest levels since the Asian financial crisis, fearing that the strength could hurt exports at a time when U.S. demand is weakening.
Bank of Korea Governor Lee Seong-tae told lawmakers during an annual parliamentary audit in Seoul that the central bank would take action if the won’s movements were excessive and if steps were necessary, although it was better for the market itself to decide currency movements.
The won hit its strongest level against the dollar in nearly two weeks on Friday, but cut back some of the gains later in the day on concerns about potential dollar-buying intervention by the South Korean authorities.
Lee’s comments came after the local markets had closed.
The Bank of Korea has repeatedly stated that it would closely monitor currency markets, expressing concern about the level of the won and money supply growth.
The Singapore dollar hit a 10-year high of 1.4577 per dollar late on Thursday, while the Malaysian ringgit rose to a 9-¢year high of 3.3585.
Weak U.S. economic data and bank earnings are the latest factors to weigh on the dollar ahead of the G7 meeting.
With global economic growth waning and a credit crunch biting, the G7 meeting is expected to focus on controlling the strains in financial markets while maintaining global growth.