Won Turns Quarterly Drop Into Gain as Kim Extends Olive Branch

(Bloomberg) -- In the space of just one week, South Korea’s won has turned a quarterly loss into a gain. And it’s all thanks to Kim Jong Un’s latest overture.

After Kim signaled in China he’s willing to engage the U.S. about abandoning nuclear weapons, the won climbed to the highest in two weeks to put it on track for a second quarterly advance. The won also got a boost as trade tensions came off the boil after the U.S. and South Korea clinched a revised trade agreement.

“Investors seem to be betting on won strength as the so-called ‘Korea discount’ is relatively lifted with tension easing,” said Park Jeong-woo, a Seoul-based economist at Korea Investment & Securities, referring to the history of tension between South and North Korea.

Asia’s most volatile currency has weathered multiple nuclear tests from North Korea in recent years and came under pressure last week amid concern it’d be in the line of fire if a trade spat between China and the U.S. worsened. It touched a one-month low of 1,084.25 Monday following its biggest weekly loss in almost two months.

South Korea’s currency climbed as much as 0.7 percent to a two-week high of 1,063.00 Thursday. After rising in three of the last four days, it’s headed for a quarterly gain compared to a three-month loss as of end of last week. The cost of insuring the nation’s five-year notes using credit default swaps declined this week.

Kim’s latest offer for talks comes as he prepares to meet South Korean President Moon Jae-in. The summit between the two leaders will be held on April 27, according to an official at South Korea’s unification ministry.

Still, some say it’s too early to gauge Kim’s true intentions as his regime has a history of using negotiations to buy time for its weapons program and secure sanctions relief.

“I don’t think talks between China and North Korea would be a new material for the won,” said Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo. “I think Kim has no credibility in the market. I am interested in the U.S.-Korea agreement rather than North Korea for the won.”

©2018 Bloomberg L.P.