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Won Slips From Six-Month High on Producer Price Fall, Fed Meet

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Sept. 17 (Bloomberg) -- South Korea’s won retreated from a six-month high and government bonds gained after data showing an 11th monthly decline in producer prices raised concern that the economy lacks momentum.

South Korea’s Producer Price Index fell 1.3 percent in August from a year earlier, compared with a 1 percent drop in July, Bank of Korea reported today. The monetary authority kept the seven-day repurchase rate at 2.5 percent for a fourth straight month on Sept. 12. The Federal Open Market Committee, which is meeting today and tomorrow, may decide on whether to cut the stimulus that drove funds to emerging markets.

The won declined 0.2 percent to 1,084.30 per dollar in Seoul, according to data compiled by Bloomberg. The currency reached 1,081.11 yesterday, the strongest since February. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 20 basis points, or 0.2 percentage point, to 7.29 percent.

“A weaker PPI flags that there’s quite a slack in the economy and there’s less pressure for the central bank to raise interest rates” in South Korea, said Roy Teo, a currency strategist at ABN Amro Bank NV in Singapore. “Going to the FOMC on the 18th, we should see the dollar recover.”

The Federal Reserve will probably trim its monthly bond-buying program by $10 billion to $75 billion this week, a survey of economists showed this month.

The yield on South Korea’s 2.75 percent bonds due June 2016 dropped five basis points to 2.84 percent, Korea Exchange Inc. prices show. That’s the lowest level at the close since July 19.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

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

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