Axel Merk discusses how U.S. inflation may affect Asian currencies with the Wall Street Journal.
"Ben Bernankes remarks yesterday, saying that the Fed has an eye on the dollar, contributed to overnight dips in the values of several Asian currencies, including theThai baht, Malaysian ringgit, Singapore dollar and Chinese yuan, though theyve since recovered some ground. ...
Inflation tied to food and energy prices is forcing tighter monetary policy or tightening biases in Asian central banks; some have let currencies appreciate. Yet Mr. Bernanke still caused a bit of a swoon. ...
Over the medium term, though, investors should still see more appreciation in at least some Asian currencies against the dollar, said Axel Merk, portfolio manager of the Merk Asian Currency Fund, to tame inflation.
Heres the rub: Though the best tool to check inflation is to let currencies gain, Mr. Merk said, many of those inflationary economies are big exporters to the U.S. The ones with pricing power, such as China, can more easily allow their currencies to gain on the dollar but a country like Vietnam that competes on prices may 'try to compensate through domestic stimulus plans [instead]. You could see some irrational measures.' "
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