Korea Won Snaps Two-Day Gain as Iraq Violence Saps Risk Appetite

South Korea’s won weakened, snapping a two-day advance, as escalating violence in Iraq reduced appetite for risk.

South Korea’s Kospi index of stocks fell as the Wall Street Journal reported that Syrian warplanes killed at least 50 people in the Iraqi province of Anbar yesterday. U.S. President Barack Obama has authorized as many as 300 troops to be sent to Iraq as advisers, while ruling out a combat role. The Bloomberg JPMorgan-Asia Dollar Index (ADXY), which tracks the region’s 10 most-used currencies against the greenback, is headed for the lowest close in a week.

The won dropped 0.3 percent to 1,020.95 per dollar in Seoul, data compiled by Bloomberg show. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell six basis points to 4.61 percent.

“The Iraqi risk is causing a flight to quality sentiment,” Kim Young Jung, a Seoul-based strategist at Woori Futures Co., wrote in a report today.

Sunni militants are consolidating their hold on a swath of Iraq, U.S. military and intelligence officials said. The main insurgent group, an al-Qaeda offshoot known as the Islamic State in Iraq and the Levant, is gaining strength through a Sunni uprising against the Shiite-led government, according to an intelligence official who briefed reporters by phone.

The yield on the 2.75 percent notes due June 2017 was little changed at 2.69 percent in Seoul, Korea Exchange prices show. The 10-year yield was steady at 3.22 percent.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Kyung-Jin Kim in Seoul at kkim245@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Robin Ganguly, Andrew Janes

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