South Korean won falls, euro strengthens following martial law announcement.
NEW YORK/LONDON, Dec 3 (Reuters) – The South Korean won saw one of the largest movements on Tuesday, plunging against the U.S. dollar after South Korea's president declared martial law in a surprise late-night television address.
Meanwhile, the euro, which has been in the spotlight recently, gained ground against the dollar as political instability in France prompted traders to seek hedging protection against potential market volatility.
The U.S. dollar briefly strengthened following a report showing a modest increase in U.S. job openings in October, alongside a decline in layoffs. However, it was the Korean won that grabbed the most attention due to unexpected political developments. South Korean President Yoon Suk Yeol stated that martial law was necessary to safeguard the country's liberal democracy, accusing opposition parties of stalling parliamentary processes and plunging the nation into a crisis.
The won fell to a low of 1,443.40 per dollar, its weakest level since October 2022, and was last down 1.9% at 1,430.72. "It’s natural for the won to fall sharply when there’s uncertainty about the emergency situation. Such drops typically happen when there are major concerns about national stability," said Juan Perez, director of trading at Monex USA. "When there’s chaos in Asia, investors often shift to the yen, and some funds that would typically flow into Korea may start moving toward Japan."
The U.S. dollar fell 0.3% against the yen to 149.12 yen, while the euro also declined by 0.2%, trading at 156.77 yen. Market speculation is increasing that Japan may raise interest rates soon. The won also slid to its lowest point against the yen since May 2023, dropping 2.2% to 1,043 won.
The euro, which had been the weakest G10 currency in November, had initially fallen 0.7% at the start of December but then gained 0.2% to $1.05185. This rise came amid growing political turmoil in France, where Prime Minister Michel Barnier faces a vote of no confidence over his proposed budget, which includes tax hikes and spending cuts aimed at addressing the country’s financial challenges. As a result, demand for hedges, as indicated by euro options volatility, reached its highest point since March 2023.
In China, the yuan hit a 13-month low due to concerns over tariff risks and weakening economic conditions. The currency was trading at 7.2850 per dollar, down 0.2% after the People's Bank of China set its trading band at its weakest in over a year.
The U.S. dollar index remained steady, slightly down at 106.34. It later trimmed losses after data revealed job openings rose to 7.744 million in October, signaling continued labor market strength. "The Fed’s December decision will be closely watched, but if members focus on the employment mandate, markets might expect a rate cut, which could support risk appetite," noted Jeffrey Roach, chief economist at LPL Financial.
U.S. fed funds futures indicated a 70% probability of a 25 basis-point rate cut this month, with 30% odds of a pause. The dollar often experiences seasonal weakness in December, but traders remain cautious this year, particularly given concerns over U.S. policy under the incoming administration of President-elect Donald Trump. Over the weekend, Trump threatened new tariffs unless BRICS nations backed the dollar as a global reserve currency.