Won Declines on Tensions With North Korea, Weaker Yuan Fixing

  • South Korean military vows to punish North for any provocation
  • Household debt surges to a record in the fourth quarter

South Korea’s won retreated as tensions with North Korea persisted and China’s central bank lowered the yuan’s fixing.

The military will punish North Korea for any provocation, a statement from the Joint Chiefs of Staff said in a statement a day after the regime in Pyongyang warned of a preemptive strike. North Korea’s firing of a long-range rocket on Feb. 7, just a month after conducting its fourth nuclear test, has escalated geopolitical risks and hurt investor sentiment. China, South Korea’s biggest overseas market, cut the yuan’s daily reference rate to the lowest in almost three weeks.

“There’s already a lot of tension on the peninsula after the nuclear test and missile launch,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Today, the yuan was fixed lower and the U.S. dollar was stronger overnight. All of those led to weakness in the won.”

The won dropped 0.2 percent to 1,234.26 a dollar in Seoul, according to data compiled by Bloomberg. It touched 1,236.69 earlier, within 0.2 percent of a five-year low of 1,239.59 reached on Feb. 19. The currency has weakened 5 percent this year in Asia’s worst performance. A gauge of the greenback’s strength rose for a third day.

South Korea’s household debt posted the biggest quarterly gain on record to surge to an all-time high of 1,207 trillion won ($977 billion), official data showed Wednesday. That’s likely to renew debate on whether the central bank should cut borrowing costs further to spur growth, or hold back to avoid inflating debt further.

Ten-year government bonds gained for the first time in six days, pushing the yield down two basis points to 1.82 percent. The yield on three-year notes fell two basis point to 1.47 percent.

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