MNI continues to anticipate a broad-based.....>

FOREX: MNI continues to anticipate a broad-based weakening of Asian FX as

interest rate differentials turn increasingly in the USD's favour. While in most

cases Asian FX still yield more than the USD, their carry advantage has

diminished greatly. Crucially, the same is true in real terms as US trailing CPI

& breakeven inflation expectations have not risen as fast as interest rates.

- Taking the spread of U.S. over Korean real yields, the figure is currently

-75bps as Korean real yields are still higher thanks to much lower long-term

inflation expectations, which are largely justified by Korea's superior fiscal

position. However, what matters for currency performance is not the absolute

level of real yields but the change. Over the past four years, U.S. real yields

have moved significantly in the greenback's favour. As one would expect, moves

higher in U.S. real yields relative to Korea's have been negative for the won,

although this correlation has recently broken down.

- (MNI - For Full Story See Main Wire At 16:34 BST 05/02)