Asia Forex: Dovish central bank weakens South Korean won, yuan the only gainer

By Chris Thomas

(Reuters) - The South Korean won fell more 1 percent on Thursday, with investors shaken after the central bank governor raised concerns about the job market and other uncertainties after hiking interest rates for the first time in over six years.

The won ended two sessions of gains to plunge 1.2 percent in its biggest intraday drop since June 16.

"This is a potential 'buy the rumour, sell the fact' event for the Korean won," Philip Wee, DBS Group's FX Strategist, said in a note.

The Bank of Korea's monetary policy board voted to hike the benchmark rate to 1.50 percent from a record-low of 1.25 percent on Thursday, but the governor also highlighted worries about a weaker job market.

The bank also projected growth would be slightly above the rate estimated in October, suggesting policymakers were tempering market expectations for rapid rate rises.

The decision to raise rates was not unanimous, BOK governor Lee Ju-yeol told a news conference following the vote, adding that "uncertainties facing the Korean economy are higher than ever."

"I think the U.S. dollar-Korean won pair would recoup part of its recent losses on the very dovish BOK rhetoric," said Andy Ji, Asia currency strategist at Commonwealth Bank of Australia, suggesting the Governor Lee's dovish tone could dim the outlook for the won.

The won remains on track for a second straight month of gains, up 3 percent so far this month and about 10 percent this year, making it the best performer in the region so far.

Other currencies in the Asian region, except the Chinese yuan, were weaker on Thursday prior to publication of a slew of economic data.

The outcome of a U.S. Senate vote, which could push forward tax reform legislation and bolster the greenback, will also be in the spotlight, with the vote likely to be held on Thursday or Friday.

Markets will also be trying to gauge U.S. data including personal consumption expenditure (PCE) and initial jobless claims, due overnight.

The Indian rupee slipped as much as 0.4 percent ahead of quarterly GDP numbers expected later in the day, while the Malaysian ringgit weakened 0.2 percent.

THAI BAHT

The Thai baht eased as much as 0.4 percent in its biggest daily drop in nearly a week.

The weakening in the baht "could be a spillover from BOK, as there are similarities in terms of some expectations of a monetary tightening", said Commonwealth Bank's Ji.

Thailand's annual industrial output rose for a fourth straight month in October, but was well below forecasts. Annual trade data is also expected later in the day.

CHINESE YUAN

The yuan was the sole gainer in the region, firming about 0.3 percent, despite a weaker midpoint fix by the People's Bank of China (PBOC), supported by corporate dollar sales.

Growth in China's manufacturing sector picked up unexpectedly in November, despite a crackdown on air pollution and a cooling property market that have been widely expected to weigh on the economy.

The official Purchasing Managers' Index (PMI) rose to 51.8 in November, compared with 51.6 in the previous month.

The baht and yuan are set for their sixth month of gains in seven.

(Reporting by Chris Thomas in Bengaluru; Editing by Eric Meijer)