BLBG:Dollar Gains as Death of North Korea’s Kim Boosts Refuge Demand; Won Drops
The dollar rose against the yen and the euro after North Korean state television said leader Kim Jong Il died, spurring concern instability may increase in the region and boosting demand for the U.S. currency as a haven.
South Korea’s won tumbled to a two-month low as the nation boosted border and coastal defenses and considered raising alert levels for the military. The euro slid before France and Spain sell bills this week amid concern political action to stem the region’s debt crisis won’t stop the region’s largest economies from seeing their credit ratings cut.
“There are lots of reasons to own dollars,” said Sara Yates, a foreign-exchange strategist at Barclays Plc in London. “We haven’t particularly got any further forward in Europe and now we’ve got more uncertainty in Asia with what’s happening in North Korea.”
The dollar strengthened 0.2 percent to $1.3025 per euro at 10:53 a.m. in London. The greenback added 0.2 percent to 77.89 yen. Europe’s common currency was little changed at 101.45 yen.
The won weakened 1.4 percent to 1,174.80, earlier touching 1,179.95, the weakest level since Oct. 7.
Kim, 70, died on Dec. 17 of exhaustion brought on by a sudden illness while on a domestic train trip, the official Korean Central News Agency said. A government statement called on North Koreans to “loyally follow” his son and successor Kim Jong Un.
Korean Central Bank
South Korea pledged steps by the central bank if needed to stabilize financial markets, and called in police officers for emergency duty. Japanese Prime Minister Yoshihiko Noda’s cabinet held a security meeting while the U.S. issued a statement saying the Obama administration is “closely monitoring” the situation.
The MSCI Asia Pacific Index of shares fell 1.8 percent, while the Stoxx Europe 600 Index of European equities was 0.6 percent higher. Ten-year German bonds fell, pushing the yield four basis points higher to 1.89 percent.
The yen dropped against the dollar for the first time in three days amid concern a destabilization of the Korean peninsula will dim the outlook for Japan’s economy and security.
“Because of its geographical proximity, if this incident destabilizes North Korea, South Korea and Japan won’t remain unscathed,” said Koji Fukaya, chief currency strategist in Tokyo at Credit Suisse Group AG. “People can’t buy the yen for risk aversion.”
Safe Havens
The yen’s decline against the dollar trimmed its gain this year to 4.1 percent. Japan’s currency has advanced 4.7 percent this year against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes, as investors sought the safest investments amid Europe’s sovereign-debt crisis. The dollar is the next-best performer, advancing 1.7 percent, while the euro has depreciated 0.9 percent.
“If there is a big shock, that would mean more buying of dollars,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “But the market is already so risk averse that the knee-jerk risk-off reaction has been less than you might have expected.”
The euro fell for the first time in three days against the dollar before France sells as much as 7 billion euros of bills today. Spain will auction government securities tomorrow maturing in three and six months.
‘Immense’ Euro Pessimism
Fitch Ratings lowered its outlook for France’s credit ranking to negative from stable on Dec. 16, saying the country’s budget deficit and government borrowings make it more vulnerable to the region’s debt crisis than other top-rated euro-zone countries. The ratings company separately placed other European nations, including Spain and Italy, on review for a downgrade.
European finance ministers will hold a conference call today to discuss 200 billion euros in additional funding through the International Monetary Fund.
“The main focus is France and the pretty decent expectation that they will lose the AAA rating, and that would still hurt the euro,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, Australia’s second-largest lender. “There’s an immense amount of pessimism around for the euro.”
The 17-nation European currency has depreciated 2.6 percent versus the dollar this year and 6.5 percent against the yen.
Futures traders increased bets that the euro will decline against the dollar to a record level, Commodity Futures Trading Commission data show. Hedge funds and other large speculators had 116,457 more bets the currency will fall versus the dollar than gain in the five-day period ended Dec. 13, compared with 95,814 a week earlier.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
