The dollar strengthened against most of its major peers and the won plunged after North Korean leader Kim Jong Il died, boosting demand for the U.S. currency as a haven from market and cross-border turmoil.
The South Korean won headed for the biggest drop in more than two months as an official at the defense ministry in Seoul said the nation hasn’t observed any changes in the military posture of North Korea today. The euro declined toward an 11- month low versus the dollar before France and Spain sell bills this week amid concern the currency bloc’s second- and fourth- largest economies will have their credit ratings cut.
“Because of increased uncertainty, it’s cause for risk aversion,” said Koji Fukaya, chief currency strategist in Tokyo at Credit Suisse Group AG. “The dollar will be the biggest beneficiary.”
The dollar strengthened 0.4 percent to $1.2990 per euro as of 1:10 p.m. in Tokyo from the close in New York on Dec. 16. The greenback added 0.3 percent to 77.98 yen. The European currency slid 0.2 percent to 101.29 yen. The won sank 1.7 percent to 1,178.56 per dollar.
“Because of its geographical proximity, if this incident destabilizes North Korea, South Korea and Japan won’t remain unscathed,” said Fukaya. “People can’t buy the yen for risk aversion.”
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. Kim probably had a stroke in August 2008 and may have also contracted pancreatic cancer, according to South Korean news reports.
France is scheduled to sell as much as 7 billion euros ($9.1 billion) of bills today. Spain will auction government securities tomorrow maturing in three and six months.
Fitch reduced its outlook for France’s credit rating 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.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
