Won was most volatile Asian currency in Oct.: Bank of Korea

The Korean won showed the largest fluctuation in October among Asian currencies due to instability in global financial markets, the Bank of Korea said Sunday.

The daily exchange rate variation of the won against the U.S. dollar was 0.71 percent last month. The exchange rate variation was the average of the absolute values of the daily exchange rate variation for a month.

The won ranked eighth in the exchange rate variation among 18 countries monitored by the central bank. The Australian dollar showed the largest variation with 0.99 percent, followed by the New Zealand dollar with 0.92 percent; the Swiss franc 0.86 percent; the Swedish krona 0.78 percent; the Canadian dollar 0.74 percent; the Danish krone 0.73 percent; and the euro 0.72 percent.

If the European countries directly hit by the European fiscal crisis are excluded, the won`s variation saw the biggest variation. That of the Japanese yen was a third of Korea`s. The Malaysian ringgit had a daily exchange rate variation of 0.62 percent, the Thai baht 0.3 percent, the Indonesian rupiah 0.25 percent, and the Chinese yuan 0.16 percent.

The variation of the won last month inched down from 0.94 percent in September, when the U.S. suffered a sovereign rating downgrade, but was the largest in 16 months since June last year.

The won`s value greatly fluctuated with a variation of more than 1 percent in May and June last year due to geopolitical risk stemming from the government`s announcement of the cause of the sinking of the naval vessel Cheonan, the introduction of forward exchange position, and the prospects of the yuan’s appreciation.

Park Seong-uk, a researcher at the Korea Institute of Finance, said, "If the exchange rate fluctuation is too high, economic players such as companies and households cannot forecast the future, making it difficult for them to engage in economic activities such as investment and consumption.”

The Bank of Korea also said in a report early this year, "The increase of 1 percentage point in the exchange rate variation was assumed to cause a 7.1-percent decline in exports and a 2.7-percentage point gain in import prices,” adding, “The exchange rate variation generates inflationary pressure after one to six months."

higgledy@donga.com