The South Korea won plunged to its weakest level in at least a week after the new finance minister signaled that he values currency market stability while a decline in stocks dampened demand for risky portfolio.
The won fell to 1,012.20 per dollar from 1,011.72 on Tuesday. It had earlier declined to 1,012.85 per dollar, its weakest level since June 30. The current levels pale in comparison to 1,008.37 that it touched on July 4, its highest level since 2008. The won’s 1-month implied volatility, which measures the expected shifts in the exchange rate used to assign price to options, remained slightly unchanged at 4.64 percent.
The incoming Finance Minister Choi Kyung Hwan told the parliament on Tuesday that though the won’s exchange rate will be determined by market forces, extreme swings are undesirable. The Kospi shares gauge ended yesterday’s trading at its weakest level since July 1 after a report indicated that global funds offloaded more local stocks that they purchased, ending 10 days of net purchases.
“It seems investors who had expected Choi to express tolerance for a stronger won are unwinding their short dollar positions,” Jude Noh, a chief currency trader at Suhyup Bank in Seoul told Bloomberg. “Stock-market declines are also adding weakening pressure to the won, although depreciation will be limited as we see local exporters selling dollars.”
The Bank of Korea is expected to retain its benchmark rate as it has done so since May 2013 in tomorrow’s policy meeting and also announce its new economic estimates.
Global investors pumped 714 billion won ($705 million) into local stocks in June and bought 442 billion won more local debt in the month, according to the Financial Supervisory Service. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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