South Korea’s won was set for a second weekly drop after foreign funds pulled money from local stocks in preparation for an eventual paring of Federal Reserve stimulus. Government bonds declined.
The U.S. central bank will cut its asset purchases to $70 billion a month in March from the current $85 billion, according to a Nov. 8 Bloomberg survey of economists. Janet Yellen, at a Senate hearing for her nomination to succeed Ben S. Bernanke as Fed chairman, signaled she will keep the record monetary stimulus that has stoked emerging-market inflows until the economy strengthens. Overseas investors sold a net $264 million of South Korean stocks this week through yesterday, exchange data show.
“Yellen’s dovish comments were already expected and markets reacted to the fact that the U.S. may start paring the stimulus earlier than other developed countries,” said Han Sung Min, a currency trader at Busan Bank in Seoul. “It’s a matter of time for the dollar to strengthen globally.”
The won fell 0.2 percent this week and was steady today at 1,067.52 per dollar as of 10:14 a.m. in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 46 basis points since Nov. 8 and fell 13 basis points today to 6.67 percent.
The Bank of Korea will begin to raise interest rates in the second half of 2014 as the nation is better placed than other developing nations to benefit from global macro developments, Goldman Sachs Group Inc. analysts including Themistoklis Fiotakis wrote in a research note yesterday. Going forward, there is less scope for won appreciation and more room for the Kospi index of stocks to rise, they added.
Yellen’s comments to Congress seem to confirm her existing stance on tapering, Bank of Korea Governor Kim Choong Soo said today. The monetary authority held its benchmark rate at 2.5 percent yesterday.
The yield on South Korea’s 2.75 percent sovereign bonds due June 2016 rose three basis points, or 0.03 percentage point, to 2.92 percent this week, according to Korea Exchange Inc. prices. The rate fell one basis point today.
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