(Reuters) - The South Korean won tumbled to a two-year low on Tuesday after President Yoon Suk Yeol declared martial law in an unannounced late night address, causing investors to flee from the currency and assets linked to the country.
The won KRW= fell 2.44% to 1,438.18 per dollar, its lowest since Nov. 2022. KRW/
U.S.-listed of South Korean stocks fell in U.S. morning trade, while exchange-traded products trading in New York including iShares MSCI South Korea ETF EWY.P and Franklin FTSE South Korea ETF FLKR.P lost about 2.6% each.
A South Korea central bank official said they are preparing ample measures to stabilize the market if needed. South Korean benchmark KOSPI .KS11 closed 1.86% at 2,500.10 on Tuesday. .KSS
President Yoon Suk Yeol declared the martial law, claiming he would eradicate “shameless pro-North Korean anti-state forces”. He did not cite any specific threat from the nuclear-armed North, however, instead focusing on his domestic political opponents.
“This naturally makes sense for the Korean won to plummet while we’re all assessing what exactly is the emergency. It usually doesn’t happen unless there is major fear or concern that the stability of the country is apparent,” Juan Perez, director of trading at Monex USA.
Meanwhile, in Latin America, MSCI’s index for Latin American currencies .MILA00000CUS fell 0.3%, while the stocks index .MILA00000PUS was on track to snap a five-day losing streak. It gained 0.5% on the day.
Brazil’s real BRL= fell 0.38% in choppy trading. Investors parsed through the country’s GDP figures that showed the economy slowed in the third quarter but still maintained a strong momentum, supported by rising investments and a robust labor market.
Traders saw a 79% chance of a 75 basis-point hike in the Selic rate, at next week’s Copom meeting. The probability of a 100 basis point increase hike was at 21%.
The Mexican peso MXN= also traded largely flat at 20.37. Data from country showed the seasonally adjusted unemployment rate was 2.5% in October, while gross fixed investment fell 0.8% in September.
The dollar took a back foot on Tuesday, boosting EM currencies.
Following recent statements by Fed officials, traders have been firming up their bets on a 25 basis point cut at the U.S. central bank’s next meeting this month.
Investors are focused on Friday’s U.S. employment data. Traders currently see a roughly 70% chance of a cut.
