Won Pares Weekly Loss as Drop Amid Korea Tensions Seen Excessive

  • Currency posted its biggest weekly drop since September
  • South Korea bonds gain as stocks slump on China market turmoil

South Korea’s won rose for the first time this year, paring its weekly drop to the worst in three months, as traders judged its declines after North Korea’s nuclear test and a rout in Chinese markets to be excessive.

The currency rose 0.2 percent to close at 1,197.84 a dollar in Seoul, according to data compiled by Bloomberg, a day after it fell to a four-month low. The won has weakened 2.1 percent from Dec. 30, the most since the period ended Sept. 25. The dollar’s 14-day relative strength index versus the won was at 69.7 Thursday, near the 70 level that signals the greenback may have climbed too fast, too soon. Local financial markets were shut Dec. 31 and Jan. 1.

South Korea’s currency and stock markets had a tumultuous start to 2016 as renewed concern about China’s growth outlook erased more than $2 trillion from the value of global equities. The rout was exacerbated by Wednesday’s nuclear test, which the North claimed was its first hydrogen bomb. South Korea resumed propaganda broadcasts on Friday across the heavily fortified border, which brought the Pyongyang-based regime to a war footing in August.

"Traders think the won is poised to recover some ground as its drop was quite steep," said Kim Dae Hun, a currency trader at Busan Bank Co. in Seoul, who predicts the currency will trade between 1,175 and 1,220 next week. "While most of the risk events are known, we have to be cautious about South Korea starting propaganda broadcast and developments in Chinese markets as overall sentiment is very weak."

Bonds Rise

The Bloomberg-JPMorgan Asia Dollar Index, which track’s the region’s 10 most active currencies outside of Japan, was steady on Friday. China set the yuan’s reference rate little changed from Thursday’s fixing after an eight-day run of reductions that sent shockwaves through financial markets and escalated fears of a global currency war.

South Korea’s government bonds rose this week as the Kospi index of local shares fell the most in a month. The yield on benchmark 10-year notes fell one basis point from Dec. 30 to 2.06 percent, Korea Exchange prices show. It rose four basis points from Thursday, when it touched a record 2.02 percent.

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