European Debt Crisis

Asian Currencies Fall Amid Investors’ Borrowing Costs Concerns

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As financiers worry that borrowing costs in Europe will worsen the debt crisis, South Korea’s won and Indonesia’s rupiah set a falling trend in Asian currencies.

The won declined after bonds from France, Belgium, Spain and Austria climbed to the highest premiums since the euro was established, and the rupiah fell to its lowest since September.

“We think Asian currencies will depreciate by the end of the year because of the euro-zone fiscal crisis,” explained Dariusz Kowalczyk of Credit Agricole CIB. “Risk aversion will dominate trading in the near term.”

Italy’s bond yields increased more than 7%, propmpting Greece, Ireland and Portugal to call for bailouts. Meanwhile, Spain and Belgium’s debt auctions were not as successful as planned.

“Investors are buying the dollar amid all the uncertainties we are seeing in the global environment,” said Roy Paul of Federal Bank. “The rupee’s slide may induce intervention  from the central bank.”

Yuan Strengthens, But Asian Stocks Plunge

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For the first time in seventeen years the yuan has surpassed 6.4 per dollar, thanks to the Federal Reserve’s efforts to keep interest rates low. According to the International Monetary Fund, the stronger yuan will help governments reduce inflation and rebalance the nation’s development, as well as stabilize the global economy.

“The inflation and trade data, together with the Fed’s policy to maintain extremely low interest rates, have fueled faster appreciation,” explained Banny Lam of CCB International Securities in Hong Kong. “Strong economic growth, supported by the latest export figures, also provides investors with confidence to buy the yuan in these turbulent times.”

However, the European debt crisis has had a negative effect on the positive turns in Asia. In countries such as Japan, stocks have suffered severe losses. Mazda Motor Corp, the Japanese carmaker, is one of many companies highly dependent on Europe. Mazda has slumped 4.3 percent, while Canon Inc., Nikon Corp. and numerous others have met similar fates.

“As Europe’s debt crisis spreads, concern is mounting about damage to the financial system,” explains Mitsushige Akino at Ichiyoshi Investment Management Co. “We may slip back into a global equity slump.”