Won Falls Most in Three Weeks on Outflow Concern; Bonds Climb

South Korea’s won fell the most in three weeks on concern a reduction of U.S. stimulus will spur outflows from emerging-market assets. Government bonds gained.

The Bloomberg-JPMorgan Asia Dollar Index dropped the most in 10 weeks yesterday before the Federal Open Market Committee releases minutes of its July meeting tomorrow. The Fed will start tapering bond buying next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13. Korean exports rose 2.6 percent last month, while inflation has remained below 2 percent since October, official data show.

“Asian currencies are weakening and volatility is rising as investors are still trying to interpret the Fed’s exit strategy,” said Cho Young Bok, a currency trader at Daegu Bank in Seoul. “The won may hold better than other emerging currencies based on South Korea’s fundamentals. Nonetheless, the overall concern in Asian markets is affecting sentiment.”

The won fell 0.4 percent to 1,120.23 per dollar as of 10:04 a.m. in Seoul, the biggest decline since July 31, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 16 basis points, or 0.16 percentage point, to 7.51 percent.

Some $8.4 billion of exchange-traded funds were pulled from developing countries and nearly $95 billion was pumped into ETFs of U.S. shares this year, data compiled by Bloomberg show.

The yield on the 2.75 percent bonds due June 2016 dropped one basis point, or 0.01 percentage point, to 2.98 percent, Korea Exchange Inc. prices 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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