Won Falls Most in a Week on Fed Tapering Bets; Bonds Decline

South Korea’s won fell the most in a week on speculation the Federal Reserve will start reining in its asset purchases as the U.S. economy improves. Government bonds declined.

Foreign investors sold more South Korean stocks than they bought yesterday for the first time since Aug. 22, after pumping in $13.2 billion in a record 44-day run of net purchases. The won rose 5.7 percent in the past three months, prompting authorities to warn against “herd behavior.” The U.S. economy is showing signs of “underlying strength,” the Federal Open Market Committee said Oct. 30, while keeping the $85 billion of stimulus that has driven funds to emerging markets.

“After the FOMC’s positive tone on the economy, speculation rose on the timing of the Fed tapering,” said Hong Seok Chan, a currency analyst at Daishin Economy Research Institute in Seoul. “Foreign fund flows into equities have slowed, the authorities’ warnings against the won’s gains may have damped sentiment.”

The won fell 0.3 percent to 1,063.35 per dollar as of 10:36 a.m. in Seoul, the biggest drop since Oct. 24, according to data compiled by Bloomberg. The currency slipped 0.1 percent for the week. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 29 basis points today and lost four basis points from Oct. 25 to 5.92 percent.

Exports, Prices

Exports from Asia’s fourth-largest economy advanced 7.3 percent in October from a year earlier, the Trade Ministry said today, exceeding the median forecast for a 2.3 percent gain in a Bloomberg survey. The nation’s consumer price climbed 0.7 percent, the least in data going back to 1999, official data showed today.

“We are increasingly uncomfortable with the prolonged disinflation regime and are concerned about the risk of running into deflation in the near term,” Raymond Yeung, Hong Kong-based senior economist at Australia & New Zealand Banking Group Ltd., wrote in a research note today.

The yield on the government’s 2.75 percent sovereign bonds due June 2016 rose one basis point, or 0.01 percentage point, today and three basis points this week to 2.83 percent, according to Korea Exchange Inc. prices.

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

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

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