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October 9, 2006

South Korean won weakens after nuclear test in North

Permalink: South Korean won weakens after nuclear test in North
by Elaine Frei

North Korea’s claims that it has carried out a long-threatened nuclear test affected few currencies markets on Monday. The biggest fall came in South Korea’s currency, and while some other Asian currencies were also affected, the damage was much less. This was due primarily to the fact that North Korea is too remote to have much of an ultimate effect on the world economy.

The South Korean won was 1.5 percent lower to Won966.50 versus the US dollar, it’s largest one-day plunge since 2004. The yen dropped as well, but by much less, losing 0.1 percent to both the US dollar and the euro, to ¥119.14 and ¥150.10 respectively. Some analysts even ventured the opinion that the yen could ultimately benefit from the tension through safe-haven investment. In China, which is on record as opposing North Korean nuclear testing, was up to Rmb7.9000.

The US dollar, meanwhile, remained largely unchanged, managing to keep the gains it posted on Friday after the announcement of US employment data that was better than had been expected. The greenback remained steady against the euro at $1.2599, while it gained 0.1 percent to SFr1.2608 versus the Swiss franc.

Sterling weakened after new data showed that producer price inflation in the UK fell further in September than it had been expected to go, largely due to declining prices for fuel. The UK currency dropped 0.3 percent against both the US dollar and the euro, to $1.8646 and £0.6758 respectively. Analysts said, however, that the drop in the PPI should not have much of an effect on UK interest rates.



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