Korean Won Completes Weekly Drop on China Data, Fed Tapering

Feb. 21 (Bloomberg) -- South Korea’s won posted its biggest weakly decline in a month as data from China and the U.S. missed estimates and minutes of the Federal Reserve’s January meeting showed support for stimulus cuts.

A preliminary Purchasing Managers’ Index in China, South Korea’s largest export market, contracted to a seven-month low for February, HSBC Holdings Plc and Markit Economics said yesterday. Several Fed officials back a continued decrease in bond purchases unless there is an “appreciable change” in the U.S. economic outlook, according to the minutes released Feb. 19. Overseas investors sold $1.2 billion more South Korean equities than they bought this month, exchange data show.

“Softer China PMI is cautionary for Korea as the country has strong leverage to China demand,” said Patrick Bennett, a Hong Kong-based strategist at Canadian Imperial Bank of Commerce. “Still, we remain positive on the won as it has strong fundamentals, and we look at the currency’s weakness as a buying opportunity.”

The won dropped 0.8 percent this week and was little changed today at 1,072.09 per dollar at the close in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 114 basis points in the past five days and fell 16 basis points today to 7.67 percent.

BNP Paribas downgraded its forecast for the Korean won to 1,120 per dollar by end-June from 1,040 previously, according to a research report today.

An index of business in the U.S. Philadelphia region unexpectedly fell and weekly jobless-benefit claims declined to 336,000, compared with the median estimate in a Bloomberg survey for a decrease to 335,000, reports showed yesterday. Bank of Korea Governor Kim Choong Soo said this week that the nation’s economy will show stability even as the U.S. tapers stimulus and that its monetary policy is “very accommodative.”

The yield on the 3.25 percent government bonds due September 2018 rose five basis points from Feb. 14 to 3.18 percent, the first weekly advance this month, according to Korea Exchange Inc. prices. The rate increased four basis points, or 0.04 percentage point, today.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net