Asian currencies rise; eyes on Europe, Bernanke
SINGAPORE, June 7 — Asian currencies rose on Thursday and extended a short-covering rally seen over the past few sessions, supported by hopes that European policymakers may soon come up with a rescue plan for Spain's ailing banks.
After tumbling in May on deepening worries about the euro zone's debt crisis, Asian currencies have regained ground this week, helped by hopes for a European policy response and a bounce in equities that improved investors' risk tolerance.
Buttressing such hopes, European sources said on Wednesday that Germany and European Union officials are urgently exploring ways to rescue Spain's debt-stricken banks although Madrid has not yet requested assistance.
Market speculation about the possibility of the US Federal Reserve launching another bond-buying programme, or QE3, has also lent Asian currencies support, with market chatter growing louder after last week's disappointing US jobs data.
The focus is on Fed Chairman Ben Bernanke's testimony on the economic outlook due later on Thursday.
"Things may turn upside down very quickly depending on European developments, but there are many people who want to sell dollars, especially against Asian currencies," said a trader for a major Japanese bank in Bangkok.
"If he drops any hints (on QE3), I think the market will completely shift to dollar-selling mode," the trader said.
There is plenty of uncertainty, however, as to whether Bernanke will drop any such suggestions.
"I don't really think he is going to tip his hand one way or another. He'll probably say that the Fed remains ready to do what is necessary," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.
"I don't necessarily think we're on the cusp of another round of QE," he said, adding that uncertainty surrounding Asian currencies remains high ahead of Greece's June 17 elections and due to Spain's fiscal woes. Speaking ahead of Bernanke's testimony, Janet Yellen, the vice chair of the Fed, laid out the case for the US central bank to provide more support to a fragile economy as financial turmoil in Europe mounts.
Analysts said Yellen's comments were not a surprise since she is known to be a policy dove.