Asian Currencies Have Weekly Drop on North Korea Attack, Europe Debt Woes

Asian currencies had their biggest weekly loss in six months as an exchange of artillery fire on the Korean peninsula deterred investment in the region and Europe’s debt crisis bolstered demand for dollars.

The Bloomberg-JPMorgan Asia Dollar Index slid for a third week, its longest losing streak since February, after North Korea shelled a South Korean island on Nov. 23, prompting retaliatory fire. The euro sank to a two-month low yesterday as Ireland negotiated a European Union-led bailout and the Financial Times Deutschland reported that policy makers in the region are pushing Portugal to seek financial aid.

“Asian currencies have suffered from the contagion effect from Europe,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “We also had an escalation of tensions from North and South Korea.”

The won fell 2.2 percent this week to 1,159.63 per dollar in Seoul, its biggest loss in five months, according to data compiled by Bloomberg. Singapore’s dollar dropped 1.9 percent to S$1.3208, the steepest slide since February 2009, and Malaysia’s ringgit retreated 1.5 percent to 3.1630. The Asia Dollar Index, which tracks the region’s 10 most-used currencies excluding the yen, declined 1.1 percent to its lowest level in two months.

The won yesterday slumped 1.9 percent after North Korea, via its KCNA state news agency, said “escalated confrontation would lead to a war.” The USS George Washington aircraft carrier will tomorrow begin exercises off the Korean peninsula with naval vessels from the South in a show of force that the North warned will take the countries “closer to the brink of war.”

War Risk

“This is really a big risk for the whole region, leading to a massive sell-off of the won,” said Minoru Shioiri, chief manager of currency trading in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co. “People don’t want to hold the won and other regional currencies over the weekend when we don’t know what will happen.”

The ringgit had its biggest weekly slide in six months as a central bank report showed the economy slowed more than economists forecast in the third quarter. Gross domestic product rose 5.3 percent from a year earlier, less than the 8.9 percent gain in the previous three months and the median 5.9 percent increase forecast in a Bloomberg survey of economists.

“We have both economic and geopolitical events that have taken a toll on investor appetite for risk,” said Wan Murezani Mohamad, an analyst at Malaysian Rating Corp. in Kuala Lumpur.

GDP Data

The Philippine peso fell 0.9 percent to 44.195 per dollar, a third weekly decline, as a Nov. 25 report showed GDP unexpectedly dropped 0.5 percent in the third quarter from the previous three months. Economists surveyed by Bloomberg forecast 0.9 percent growth for the period.

China’s yuan declined 0.42 percent this week to 6.6675 per dollar, its biggest loss since December 2008.

“There’s heightened risk aversion after the Korea situation and the European debt crisis,” said Claudio Piron, head of emerging Asia foreign exchange and fixed-income strategy at Bank of America’s Merrill Lynch unit in Singapore. “If you look across the region, all Asian currencies have weakened against the dollar.”

Taiwan’s dollar fell 0.5 percent this week to NT$30.83, while Indonesia’s rupiah retreated 0.8 percent to 9,013. Thailand’s baht fell 0.8 percent to 30.20.