South Korea’s won declined for a second day as the dollar rallied and the nation’s central bank chief said the MERS virus outbreak poses the biggest risk to the economy.
The Middle East Respiratory Syndrome increases uncertainty and there are external risks such as the Greek debt crisis and potentially higher U.S. interest rates, Bank of Korea Governor Lee Ju Yeol said Wednesday at a meeting with economists. A gauge of the dollar held a three-day gain after Federal Reserve Governor Jerome Powell said Tuesday he sees a 50-50 chance for him to support rate increases in September and December.
The won fell 0.3 percent to close at 1,108.51 a dollar in Seoul, data compiled by Bloomberg show. The currency’s two-day drop is the biggest since May 26, and it has weakened 1.6 percent this year. The Bloomberg Dollar Spot Index retreated 0.1 percent following a 1 percent advance in the last two days.
“If the MERS issue deteriorates it will increases worries about an economic recovery and pull the won down,” said Kim Moon Il, a Seoul-based analyst at Eugene Investment & Securities Co. “Fed Governor Powell’s remarks on U.S. rates supported bets for the dollar to strengthen against the won.”
The BOK lowered its key rate to a record 1.5 percent on June 11, flagging MERS as an imminent threat to consumption as South Koreans avoid malls and restaurants for fear of the virus. Monitoring by the central bank shows consumption dropped last week from a year earlier, but at a slower pace than in preceding weeks, Lee said Wednesday.
Government bonds fell, with the yield on notes due June 2018 rising two basis points to 1.82 percent, Korea Exchange prices show. The 10-year yield was little changed at 2.49 percent.