Won Completes a Fourth Weekly Decline on Fed Concern; Bonds Fall

The won completed a fourth weekly loss as South Korean importers bought dollars to pay month-end bills and amid concern the Federal Reserve will taper stimulus policies that have spurred fund flows into emerging markets.

Fed Chairman Ben S. Bernanke said last week the central bank could reduce the pace of its monthly bond purchases if there are signs of sustained improvement in the U.S. economy. Data this week showed consumer confidence in the world’s largest economy at a five-year high. South Korean government bonds extended the week’s drop after Statistics Korea said yesterday that industrial production climbed 0.8 percent in April from March, the first increase this year.

“Importers must have bought more dollars today as it’s the last day of the month, pushing the won down,” said Yoo Hyen Jo, an analyst at Shinhan Investment Corp. in Seoul. “U.S. economic data added to concerns whether the Fed will taper its bond buying.”

The local currency dropped 0.2 percent today and this week to 1,129.64 per dollar in Seoul, according to data compiled by Bloomberg. It slumped 2.5 percent this month and touched 1,133.72 per dollar on May 29, the lowest level since April 11.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined 17 basis points, or 0.17 percentage point, this week to 9.08 percent. It fell seven basis points today.

Economic Outlook

Park Seong Dong, a director-general at Statistics Korea, told reporters yesterday it’s hard to say if the economy is showing an upturn yet. South Korean exports probably shrank 0.9 percent in May from a year earlier, according to the median estimate of 12 economists by Bloomberg News survey before data due tomorrow. That compares with a 0.4 percent gain in April.

Foreign funds bought more South Korean shares than they sold on all days except one this week, exchange data show. An index of manufacturers’ confidence jumped to the highest level in a year, the Bank of Korea said yesterday.

The yield on South Korea’s 2.75 percent government bonds due March 2018 rose six basis points today and 19 basis points this week to 2.89 percent, prices from Korea Exchange Inc. show. That’s the highest level for a five-year note since Feb. 4, data compiled by Bloomberg show.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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