Won Set for Third Weekly Drop on Europe Woes, Korea Curb Concern

The won headed for a third weekly decline as turmoil in Cyprus underscored concern that Europe’s debt crisis is worsening, and South Korea said it will consider steps to curb capital flows. Government bonds gained.

The European Central Bank said yesterday it may cut Cypriot banks off from emergency funds after March 25 following the nation’s lawmakers’ rejection of a plan to tax bank deposits. The won touched a six-month low after a South Korean official said March 20 that policy makers will consider various financial taxes if needed. The Kospi Index of shares slipped 1.7 percent this week as foreign investors sold more local stocks than they bought in the six days through yesterday.

“Investors remain concerned the Cyprus issue hasn’t been resolved, which is keeping them from investing in emerging- market assets,” said Jeon Seung Ji, analyst at Samsung Futures Inc. in Seoul. “Exporters are looking to sell dollars, which will limit further declines in the won.”

The won slid 0.6 percent this week to trade at 1,117.03 per dollar as of 10:40 a.m. in Seoul, according to data compiled by Bloomberg. The currency fell 0.1 percent today and touched 1,119.95 on March 20, the weakest since Sept. 27. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 11 basis points, or 0.11 percentage point, to 8.45 percent.

Prospects for economic growth in Europe this year are “not good,” John Lipsky, the International Monetary Fund’s former no. 2 official said at a forum in Seoul today. Continued monetary easing brings concerns of slowing growth and inflation in U.S. economy, Lipsky said.

The yield on South Korea’s 2.75 percent bonds due December 2015 dropped one basis point to 2.58 percent, a record low, according to prices from Korea Exchange Inc. The yield dropped three basis points this week.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.