Growing expectations that a fresh round of quantitative easing looms in the US and Singapore’s decision to tighten monetary policy sent the dollar to multiyear lows against several Asia-Pacific currencies.
Thursday’s demand for the currencies – which also contributed to a stock market rally – adds to the dilemma facing the region’s fast-growing economies, which face pressure to allow their currencies to appreciate and fear that surging inflows could destabilise their economies.
The dilemma stems from an intensifying dispute between the US and China, with the former calling for faster renminbi appreciation, and the latter blaming US monetary policy for potentially destabilising flows into emerging markets. The situation is set to be further complicated should the US move forward, as expected, with what has been dubbed QE2, which would release even more liquidity, much of which could end up in Asian emerging markets.