Won Weakens a Third Week on Europe Woes, Concern on Korea Curbs

The won declined for a third week as turmoil in Cyprus underscored concern that Europe’s debt crisis is worsening, and South Korea said it will consider steps to curb capital flows. Government bonds gained.

The European Central Bank said yesterday it may cut Cypriot banks off from emergency funds after March 25 following the nation’s lawmakers’ rejection of a plan to tax bank deposits. The won touched a six-month low after a South Korean official said March 20 that policy makers will consider various financial taxes if needed. The Kospi Index of shares slipped 1.9 percent this week as foreign investors sold more local stocks than they bought in the six days through yesterday.

“Investors remain concerned the Cyprus issue hasn’t been resolved, which is keeping them from investing in emerging-market assets,” said Jeon Seung Ji, analyst at Samsung Futures Inc. in Seoul. “Exporters are looking to sell dollars, which will limit further declines in the won.”

The won declined 0.7 percent this week to 1,119.28 per dollar in Seoul, according to data compiled by Bloomberg. The currency fell 0.3 percent today and touched 1,119.95 on March 20, the weakest since Sept. 27. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 17 basis points, or 0.17 percentage point, to 8.39 percent.

Prospects for economic growth in Europe this year are “not good,” John Lipsky, the International Monetary Fund’s former no. 2 official, said at a forum in Seoul today. Continued monetary easing brings concern of slowing growth and inflation in the U.S. economy, he said.

The yield on South Korea’s 2.75 percent bonds due December 2015 dropped one basis point to 2.58 percent, the lowest level since the notes were sold in December, according to prices from Korea Exchange Inc. The yield fell three basis points this week.