Won in Biggest Weekly Drop in Six on Rate-Cut Bets, North Korea

  • Currency pares losses Friday after verbal intervention
  • Foreign-exchange reserves are sufficient: Finance Minister

The won had its biggest weekly drop in six on rising geopolitical risk and speculation the central bank will cut interest rates, prompting South Korean authorities to say they will act to curb volatility.

Recent movements in the won, which fell to a five-year low on Friday, have been “excessive,”the central bank and Finance Ministry said in a joint text message, adding that they were concerned about “herd behavior.” The won strengthened about 0.9 percent within minutes of the news. Bank of Korea Governor Lee Ju Yeol said earlier that economic uncertainties are “higher than ever” due to external volatility and increasing tensions with North Korea.

The won declined 1.8 percent this week to 1,234.36 a dollar in Seoul, according to data compiled by Bloomberg. It closed down 0.6 percent on Friday after falling as much as 1 percent earlier to the weakest level since June 2010. The currency has dropped 5 percent this year, the most in Asia.

“The authorities have shown their will to stabilize the currency,” said Daeil Suh, a Seoul-based economist at Daewoo Securities Co., who predicts the won will drop to 1,260 by the end of this year. “But the factors that are weakening the won, including rate-cut bets and geopolitical risks, can’t be resolved in the short term, so the won will maintain its downward trend."

Reserves Sufficient

One of seven BOK board members called for a cut as the monetary authority held its benchmark rate on Tuesday and five of 24 analysts surveyed by Bloomberg are forecasting a reduction next month. North Korea’s Kim Jong Un has ordered his military to strengthen terror capabilities, South Korean President Park Geun Hye’s press secretary said in a briefing on Thursday.

South Korea’s foreign exchange reserves are sufficient to respond to risks, Finance Minister Yoo Il Ho said on Friday. Global investors have pulled $2.7 billion from local stocks this year and sold a net $1.6 billion of won-denominated bonds.

Government bonds rose this week, pushing the yield on the notes due December 2018 down one basis point to 1.47 percent after reaching an unprecedented 1.44 percent on Tuesday, Korea Exchange prices show. The 10-year yield was steady at 1.81 percent, four basis points off a record low reached last week.

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