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Prospects Daily: Asian currencies extend gains on Fed remarks

Important developments today:

1. Asian currencies extend gains on Fed remarks.

2. US home prices fall for fifth consecutive month.

Asian currencies extend gains on Fed remarks. Emerging Asian currencies strengthened for a third day on Tuesday after the Federal Reserve signaled that it will maintain a supportive monetary policy and prompted speculation of further stimulus for the U.S. economy, boosting demand for higher-yielding assets. The rally was led by the gains from the Indian rupee (0.9%) and the South Korean won (0.7%). Elsewhere, Malaysia’s ringgit gained 0.5%, the Philippine peso strengthened 0.3%, Thailand’s baht gained 0.2%, and the China’s yuan advanced 0.11%. The Bloomberg-JP Morgan Asian Dollar Index, which tracks Asia’s 10 most-active currencies excluding Japanese yen, has posted a year-to-date gain of 1.4%, with the index gearing for the best quarterly gain since 2010. Asian currencies have rebounded from the correction in the past two weeks amid concerns over the cooling Chinese economy.

US home prices fall for fifth consecutive month. According to the closely watched Standard & Poor’s/Case–Shiller home price index, US home prices fell for the fifth month running in January by 0.8% (m/m, nsa). Since its peak in 2006, home prices nation-wide have fallen by 34% and are now back to 2002 levels. Even though the US economy is recovering, a high stock of distressed homes, mounting foreclosures and tight credit conditions notwithstanding the historically low interest rates, is putting downward pressure on prices. In February, foreclosure activity surged as settlement was reached on the government’s investigation into foreclosure paper work by the nation’s five biggest mortgage lenders. On the brighter side, however, the decline in prices and improving employment situation is supporting a pick-up in housing demand: in the three months leading to February, existing home sales and new housing unit starts was up 19.8% and 5.5% respectively.

Among Emerging Markets

In East Asia and Pacific, Vietnam’s consumer price inflation slowed to 0.16% in March, the lowest monthly pace in almost two years, and to 14.15% year-on-year (y/y) mainly because of a fall in food prices amid weakening domestic demand and slowing economic growth.

In Europe and Central Asia, Turkey’s central bank kept its benchmark one-week repurchase rate at 5.75% in an effort to bolster the lira even as inflation remained above 10% in the first two months of this year.  

In South Asia, Sri Lanka’s GDP grew at 8.3% (y/y) in the fourth quarter of 2011, similar to the 8.4% growth recorded in the third quarter, boosted by reconstruction spending and an increase in tourism arrivals, despite headwinds from softening global demand and slowing exports. Full year output growth accelerated to 8.3% in 2011 from 8.0% in 2010.