Won Drops to 1-Month Low on Equity Outflows, North Korea Concern

South Korea’s won fell to its lowest level this month as foreign funds extended sales of local stocks, and on regional political concerns after North Korea threatened to conduct a nuclear test.

A planned “high-level” atomic test and long-range rocket launches will target the U.S., according to a statement from the National Defense Commission in Pyongyang carried by the official Korean Central News Agency yesterday. The White House said North Korea’s threat to conduct a nuclear weapons test is “needlessly provocative” and will lead to further isolation and sanctions. Overseas investors sold more of the nation’s shares than they bought on all days but one this week.

“Continued selling of shares by foreigners is keeping the won lower, while the North Korean threat increases the geopolitical risk,” said Hong Seok Chan, analyst at Daishin Economic Research Institute in Seoul. “Exporters selling dollars toward the month-end are keeping the won from weakening further.”

The won fell 0.1 percent to 1,069.55 per dollar as of 10:24 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,070.95 earlier, lowest level since Dec. 28. The Kospi index of shares slipped for a third day, falling 0.3 percent today.

The currency declined 1.2 percent this week as Finance Minister Bahk Jae Wan vowed to curb volatility, saying the won’s recent gains were too steep. The government is “all ready” for new measures, Bahk said Jan. 23, declining to comment on when they will be announced. The currency touched 1,054.49 on Jan. 15, a level not seen since August 2011. It climbed 8.3 percent in 2012, the region’s best performance.

One-month implied volatility in the won, a gauge of expected moves in exchange rates used to price options, dropped 11 basis points, or 0.11 percentage point, to 6.02 percent today and was 85 points higher than a week ago.

The yield on South Korea’s 2.75 percent bonds due September 2017 was unchanged at 2.82 percent today and was three basis points lower than five days ago, Korea Exchange prices show.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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