Published : 5 days ago, on 04/12/2024

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The South Korean won came off a more than two-year low against the dollar on Tuesday, while exchange traded funds linked to South Korean stocks similarly cut losses after President Yoon Suk Yeol said he would lift a martial law he had imposed just hours before.

Yoon’s martial law declaration was unanimously voted down by 190 lawmakers in parliament, with his own party urging him to lift the decree. Under South Korean law, the president must immediately lift martial law if parliament demands it by a majority vote.

The South Korean unit fell to as low as 1,443.40 won per dollar, the lowest since October 2022, in the aftermath of Yoon declaring martial law. It was last down almost 1% at 1,418.18.

“It’s a very confusing situation,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York. But at the end of the day, he noted that South Korea’s news is local and has limited impact.

Our corporate clients do not have Korean won exposure for a couple of reasons. One, the Korean won is a restricted currency. And second, most of the trade between the U.S. and South Korea is conducted in U.S. dollars.”

Yoon earlier said he had no choice but to resort to such a measure in order to safeguard free and constitutional order, saying opposition parties have taken the parliamentary process hostage to throw the country into a crisis.

Stocks listed overseas swooned earlier, but are now recouping some of their losses. The MSCI South Korea ETF was off its lows, though still last down 0.9% at 1,417.07 won , while the Franklin FTSE South Korea ETF was 1.1% lower.

With losses of more than 9% so far this year, the won is one of Asia’s worst performers and has been persistently under pressure as the Bank of Korea cut rates aggressively to support the economy and as investors fled a market they see as exposed heavily to exports and to U.S. trade tariffs on China.

The Korean won is already under pressure from the looming threat of tariffs and their detrimental impact on export-driven economies,” said Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments in Singapore.

“This latest development is likely to exacerbate the currency’s weakness, encouraging speculators to use the won as a high-beta proxy for expressing tariff-related risks.”

(Reporting by Gertrude Chavez-Dreyfuss, Vidya Ranganathan, Tom Westbrook and Cynthia Kim; Editing by Chizu Nomiyama and Alistair Bell)