Won Drops to Three-Month Low as Greek Crisis Curbs Risk Appetite

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South Korea’s won fell to the lowest level in three months as Greece’s decision to impose capital controls and shut banks damped demand for riskier assets.

Authorities in South Korea have contingency plans to offset possible risks from Greece and will stabilize financial markets if needed, Vice Finance Minister Joo Hyung Hwan said in Seoul Monday. The Kospi index of shares fell the most in more than a month as foreigners sold more stocks than they bought after Greece moved to avert the collapse of its financial system, fueling concern about its exit from the euro.

The won dropped 0.8 percent to close at 1,125.19 a dollar in Seoul, data compiled by Bloomberg show. The currency earlier reached 1,127.55, the weakest since March 18. The euro sank as much as 1.9 percent to $1.0955 before moving to $1.1069 from $1.1167 Friday. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, rose for a second day.

“The situation in Greece and its impact on offshore demand for South Korean shares is crucial to watch,” said Park Dae Bong, a Seoul-based currency trader at Nonghyup Bank, who sees the won falling to as low as 1,136 a dollar this week. “Heavy dollar-selling by local exporters before month-end was overwhelmed by purchases by foreign investors.”

Government bonds rose, with the yield on the notes due June 2025 falling three basis points to 2.45 percent, Korea Exchange prices show. The three-year yield declined two basis points to 1.80 percent.

South Korean authorities will strengthen monitoring of developments in Greece even though the related risks will have a limited impact on the Asian nation’s economy, Vice Finance Minister Joo said. The Bank of Korea will cooperate with the government to swiftly respond to price swings if needed, the central bank said in statement Monday after it held a meeting to discuss the impact of Greek crisis.

Currency gains from buying overseas stocks will be exempt from tax in order to encourage outbound investment, the Finance Ministry said in an e-mailed statement Monday.

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