Korean Won Drops to Two-Month Low After China Unveils Yuan Index

  • New yuan gauge set to weaken Asian currencies: Kookmin Bank
  • Overseas funds sell South Korean stocks for ninth day

South Korea’s won fell to the lowest in more than two months on speculation China will allow the yuan to weaken after policy makers unveiled a measure that valued it against a broad range of currencies.

The yuan fell to a four-year low in Shanghai after China Foreign Exchange Trade System on Friday published an index composed of 13 currencies. The CFETS, which is run by the central bank to facilitate interbank trading, said the gauge will “help bring about a shift in how the public and the market observe” exchange-rate moves. Global investors sold more South Korean stocks than they bought for a ninth day as a plunge in oil and the prospect of the Federal Reserve raising interest rates this week damped demand for riskier assets.

The won weakened 0.4 percent to close at 1,184.77 a dollar in Seoul, data compiled by Bloomberg show. The currency earlier fell to 1,189.78, the lowest since Sept. 30, and has led declines in Asia this month with a 2.3 percent drop. Kookmin Bank predicts the won will trade between 1,178 and 1,192 this week.

"The won is facing weakening pressure along with regional currencies as China’s new index is highly likely to support a lower yuan," said Dong-Wook Kim, a currency trader at Kookmin Bank in Seoul. "Outflows from emerging markets are set to continue before the U.S. policy review. There’s concern the authorities will step in to stem the won’s drop."

BOK Statement

The Bank of Korea will strengthen monitoring of financial markets and take steps, if needed, to stabilize them after the Fed meeting, according to a statement on Monday.

There’s a 74 percent probability that U.S. interest rates will be increased at the Federal Open Market Committee meeting on Dec. 15-16, futures contracts show. Brent crude for January settlement extended losses on Monday after declining to $37.93 a barrel on the London-based ICE Futures Europe exchange on Friday, the lowest close since December 2008, on speculation that the Organization of Petroleum Exporting Countries’ decision to scrap production limits will keep the market oversupplied.

Overseas funds have pulled more than $3.3 billion from South Korean equities this quarter. The government is monitoring capital movements and prospects of further outflows are limited, Vice Finance Minister Joo Hyung Hwan said in Seoul on Friday.

Government bonds rose, with the 10-year yield falling two basis points to 2.22 percent, Korea Exchange prices show. The three-year yield declined two basis points to 1.73 percent.

Before it's here, it's on the Bloomberg Terminal.