Taiwan dollar retreats, central bank official sees pressure abating

By Liang-sa Loh and Faith Hung

TAIPEI, May 6 (Reuters) - Taiwan's currency retreated slightly on Tuesday following a surge against the U.S. dollar in the previous two trading sessions, with a senior central bank official saying expectations of it appreciating further had largely abated.

The Taiwan dollar TWD=TP had since Friday jumped 10% on market speculation the United States had asked Taipei to allow it to appreciate as part of tariff talks. The central bank and even Taiwan's president denied any such talks about the currency had taken place.

Speaking to reporters in Taipei, Eugene Tsai, head of the Taiwan central bank's foreign exchange department, said market expectations for the Taiwan dollar's appreciation had mostly gone by Tuesday.

"Judging from today's market, we can already feel that the market has returned to a relatively stable situation," he said.

The weakening of the Taiwan dollar on Tuesday was because of a relatively large and "obvious" change in expectations, Tsai added.

The central bank's governor said on Monday that speculators were not welcome, and Tsai said officials will visit foreign exchange custodian banks to carry out inspections.

The central is not only concerned about the inflow of hot money, but also whether foreign exchange forward contracts are based on actual demand, he added.

One Taiwan-based foreign exchange trader told Reuters that both the "big boss" central bank and President Lai Ching-te denying stories about agreeing to allow the currency to appreciate had had their intended effect.

"Not only the big boss, but its big boss came out to comment," the trader said.

The Taiwan dollar does not have an official peg but the central bank does intervene as and when needed to ensure the currency's stability.

Another trader said that the central bank had intervened again on Tuesday morning to rein in the currency's rise.

"But I am afraid that the current trend of the Taiwan dollar's rise will still continue," the trader added.

The currency was trading at around 30.28 per dollar in the afternoon.

Taiwan runs a large trade surplus with the United States, which surged 83% last year, with the island's exports to the U.S. hitting a record $111.4 billion, driven by demand for high-tech products such as semiconductors.