Won Falls Most in Three Weeks on Fed Taper Concern; Bonds Drop

South Korea’s won fell the most in three weeks after Federal Reserve minutes added to concern that a paring of U.S. stimulus will intensify outflows from emerging markets. Government bonds declined.

Policymakers were “broadly comfortable” with a plan to start trimming bond purchases later this year if the U.S. economy improves, the minutes of the Federal Open Market Committee’s July meeting showed yesterday. South Korea will act swiftly if financial-market volatility increases, the finance ministry said yesterday. The nation’s department store sales fell 2.1 percent in July from a year ago, compared with a 4.1 percent gain in June, the trade ministry said today.

“The FOMC minutes added weight to speculation that Fed tapering will start later this year, which means a further rout in emerging-market currencies,” Son Eun Jeong, a Seoul-based currency analyst at Woori Futures Co., wrote in a research note today. “The government is trying to assure the market by saying the contagion won’t spread to local markets.”

The won weakened 0.7 percent to 1,124.95 per dollar as of 10:22 a.m. in Seoul, according to data compiled by Bloomberg. The currency fell as much as 0.8 percent, the biggest decline since July 31. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 40 basis points, or 0.40 percentage point, to 8.46 percent.

The yield on the 2.75 percent government bonds due June 2016 climbed two basis points to 2.99 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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.