Won Declines on Export Figures

The major currency of South Korea, Won has declined to a 1-week low figure as exports grew little in March. Apart from that, worsening relations with its neighbor North Korea increased risk of conflict and as a result, Won got affected. Incidentally, the South Korean Government bonds have declined as well.

Overseas sales of South Korea increased by 0.4%, if compared to the figures of a year earlier. Incidentally, this is less than the 1.8% gain forecasted by the economists. Consumer prices increased by 1.3%, marking its lowest increase since last August, as stated in a separate report. On 30th March, North Korea stated that currently a state of war exists with South Korea and it also threatened to shut the jointly run industrial zone in Gaeseong, a border city. Incidentally, in last February, North Korea detonated a nuclear device and since then tensions have been on a rising note. The situation got aggravated further as South Korea and US started joint Military exercises in March.

According to the Analyst of Samsung Futures Inc., Jeon Seung Ji, both less than expected export growth and tension with North Korea are negative factors for Won. He added that what Won needs now is a trade surplus and Dollar sales done by the exporters’. If these things happen, the Won may not fall any further; however, nothing can be said with 100% conviction on this matter.

Won declined by 0.3% on today and it is currently priced at 1114.73 per USD. At one point of time, it touched the weakest figure since 22nd March, 1116.88. The implied volatility in the currency for last month has increased by 47 basis points and is currently at 7.91%. It denotes the expected moves in the exchange rates used to price the options. As far as data released by the Korea Exchange Inc. is concerned, the yield on the 2.75% bonds due on March, 2018 increased by 5 basis points and is currently at 2.57%. Consumer prices have increased by 1.3% in March, if compared to value of a year earlier.

As Yen has weakened, the Japanese cars and electronics became more competitive in the global markets. The imports of South Korea still declined by 2% from its value in 2012. On the other hand, the trade surplus increased to $3.4 billion in February, from its previous value of $2 billion.