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Won Drops as New Finance Chief Seeks Stability, Stocks Decline

South Korea’s won fell to the lowest level in more than a week after the incoming finance minister said it is important to have stability in the currency market and as a drop in equities sapped demand for riskier assets.

While the won’s exchange rate should be set by the market, sharp fluctuations aren’t desirable, Finance Minister Nominee Choi Kyung Hwan said at a parliamentary hearing yesterday. The Kospi index of shares closed at the lowest level since July 1 as exchange data showed overseas investors sold more local equities than they bought for the first time in 10 days. The Bank of Korea will hold its benchmark rate at 2.5 percent tomorrow, according to all 16 economists surveyed by Bloomberg.

The won weakened to 1,012.20 per dollar in Seoul, from 1,011.72 yesterday, according to data compiled by Bloomberg. It dropped to 1,012.85 earlier, the lowest since June 30. The currency reached 1,008.37 on July 4, the strongest level since 2008. One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, was little changed at 4.64 percent.

“It seems investors who had expected Choi to express tolerance for a stronger won are unwinding their short dollar positions,” said Jude Noh, a Seoul-based chief currency trader at Suhyup Bank. “Stock-market declines are also adding weakening pressure to the won, although depreciation will be limited as we see local exporters selling dollars.”

The Bank of Korea, which hasn’t changed its key rate since a cut in May 2013, will release its revised economic outlook after the policy meeting tomorrow. Foreign investors increased their holdings of local equities by 714 billion won ($705 million) and local-currency debt by 442 billion won last month, the Financial Supervisory Service reported today.

Bonds Gain

The yield on the 2.75 percent notes due June 2017 dropped three basis points, or 0.03 percentage point, to 2.62 percent, Korea Exchange Inc. prices show. The 10-year yield was little changed at 3.16 percent.

“South Korea’s shorter-tenor bonds were strong today on expectations that some board members may express disagreement on the central bank’s decision to hold the benchmark rate tomorrow,” said Park Dongjin, a Seoul-based fixed income strategist for Samsung Futures Inc.

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