Euro's debut helpful to Asian currencies

Euro's debut helpful to Asian currencies

SINGAPORE (AFP): Europe's new single currency will make its
international debut in Asia on Monday, but analysts say trading
will hinge on the greenback's strength.

The regional currencies were poised to enjoy some strength
against the dollar with the introduction of the euro on Jan. 1,
but Asian governments want currency stability to maintain export
competitiveness, they said.

Philip Wee, regional treasury economist with Standard
Chartered Bank in Singapore, said the strong euro, a fusion of 11
European currencies into a single money, could drag down the U.S.
dollar with Asian currencies benefiting by default.

He said a higher euro against the dollar would strengthen the
yen against the greenback and lend support to the other Asian
currencies.

Since late last year, the yen has set the direction of most
Asian currencies, which plunged against the dollar following the
mid-1997 currency crisis.

The yen began setting the pace for other Asian units
especially from October when U.S. hedge funds faced financial
difficulties and were forced to unload dollars to repay yen
loans, pulling the Japanese currency to a 16-month high.

The yen appreciated by about 13 percent against the greenback
in 1998.

"Most Asian authorities, whose currencies have regained quite
a bit of strength in the second half of 1998, will favor a more
stable exchange rate against the U.S. dollar at this point," Wee
said.

He predicted that Asian central banks would enter the market
to ensure that their currencies did not appreciate rapidly to
guard the region's competitiveness in exports, regarded as the
key to reviving their recession-hit economies.

Europe is seen as a crucial market for Asia's export recovery,
and lower-valued Asian currencies can make the region's exports
more competitive.

The South Korean central bank already acted last month to
cushion the won's rapid rise against the dollar.

"The dollar is still the interventionist currency," Wee said.

Financiers expect the first real test of the euro on Monday
after the New Year's break, although the new currency was quoted
in Bombay on Friday, the date of the currency's official launch.

Charles Wheeler, capital markets analyst at US research house
Standard and Poor's MMS in Singapore, said he expected thin
turnover against the euro in Asia on Monday until European
trading began.

Asian trading mostly ends at about 0900 GMT to 0930 GMT, an
hour or so after the opening of European trading.

"I think there will be very little activity until Europe comes
in," said Wheeler, who forecast that in the first month of the
euro's life, it would strengthen to 1.22-1.23 against the dollar.

The euro was set at 1.16675 to the U.S. dollar by European
Union finance ministers on New Year's Eve.

"There is under-representation of European currencies in
reserve holdings and with the advent of the euro, perhaps some
central banks in Asia will reallocate their reserves," Wheeler
said.

Apart from balancing their reserves, Asia would also face
greater demand for euros and decreased demand for dollars in the
medium term as transaction costs in Europe will be denominated in
the new currency, he said.

Steve Brice, another regional treasury economist with Standard
Chartered Bank, said the euro had been forecast to appreciate
against most Asian currencies in 1999.

Brice said that based on his bank's forecast, the euro could
appreciate from 139 yen in the first quarter of 1999 to 143 in
the third quarter, 2.02 Singapore dollars to 2.16, from 41.7 Thai
baht to 41.8, 50.3 Philippine pesos to 52.3, 4.66 Malaysian
ringgit to 4.97 and 1,537 Korean won to 1625.

During the same period, the euro could rise from 10.44 Chinese
yuan to 10.84, 40.5 Taiwan dollars to 40.7 and 9.77 Hong Kong
dollar to 10.1.