Won Weakens as Investors Await Fed Minutes; Bonds Steady

South Korea’s won retreated from a one-week high before a Federal Reserve report that may influence expectations for further monetary stimulus in the world’s biggest economy. Government bonds were little changed.

The Fed releases minutes today of its July 31-Aug. 1 policy meeting, having said at the time it would provide additional accommodation as needed. The central bank refrained from signaling imminent plans for a third round of asset purchases that may spur capital inflows into emerging-market assets. Overseas investors bought more Korean equities than they sold on all but one day this month, boosting their holdings by $4.5 billion, exchange data show.

“The won extended losses near market closure as some investors covered their short positions on the dollar,” said Lee Jung Hyun, a Seoul-based currency trader for Industrial Bank of Korea. (024110) “South Korean importers bought the dollar to settle bills, and the Fed’s minutes released today may make the market volatile.” A short position is a bet an asset will decline.

The won weakened 0.4 percent to 1,135.90 per dollar in Seoul, data compiled by Bloomberg show. It touched 1,130.80 earlier, the strongest level since Aug. 14. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, fell 13 basis points, or 0.13 percentage point, to 7.34 percent.

The yield on the government’s 3.25 percent bonds due June 2015 was steady at 2.91 percent, Korea Exchange Inc. prices show. Three-year debt futures slid 0.01 to 105.79 and the one- year interest-rate swap climbed one basis point to 2.94 percent.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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