South Korea’s currency sank to its lowest level in almost six years against the U.S. dollar Friday, as Cold War-era geopolitical tensions with North Korea and expectations of an interest rate cut weighed down on the value of Korean assets.

Local authorities warned of possible action in the foreign exchange market in their first verbal intervention in more than four years.

The won closed at 1,234.4 per dollar in Seoul, shedding 7 won from the previous day. It is the currency’s weakest close since June 11, 2010. Local shares gained ground, with the main bourse KOSPI closing 0.39 percent higher at 1916.24 points. 

“Heavy offshore sell-off (of Korean assets) is pushing the won down,” said Jeon Seung-ji, currency analyst of Samsung Futures in Seoul.

“From the way things look now, it’s hard to find a reason for the won not to depreciate,” she said, predicting a further fall to 1,250 won per dollar by end-March.

The currency had dipped to 1,239.6 in morning trade, but pared some of the losses after the Bank of Korea and the Finance Ministry made joint remarks signaling their readiness to intervene in the market.

“We believe fluctuations and volatility in the won-dollar exchange rate have become excessive recently,” they said in a text message sent out to media before noon.

“Foreign currency authorities remain unchanged in their stance to deal with excessive volatility in the market and will take all available measures if necessary,” they added.

It was Seoul’s first verbal intervention since September 2011.

The won’s drop is in line with a global weakness in other emerging-market currencies, as investors moved to relocate their money to safer assets. Korea-specific issues -- chilling inter-Korean relations and a prevailing view in the markets that the central bank will soon cut the base interest rate from the current record-low level to support the economy -- are accelerating the speed of its depreciation, experts said.

BOK Gov. Lee Ju-yeol also acknowledged increased downside risks to the local economy.

“Since the beginning of the year, uncertainties in the global financial market have increased due to instability in the Chinese market, additional drops in global oil prices and the introduction of negative interest rates by the Bank of Japan,” Lee said in a meeting Friday with top financial officials and bankers.

He also said North Korea-related geopolitical risks have further heightened such uncertainties.


By Lee Sun-young (milaya@heraldcorp.com)