Won Falls for Second Day on Concern Economy Slowing, Fed Outlook

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South Korea’s won fell for a second day on concern a slowdown in the economy is deepening just as the U.S. moves closer to raising interest rates.

Official data due Thursday will show South Korea’s gross domestic product expanded 2.3 percent from a year earlier in the April-June period, the least in nine quarters, according to a Bloomberg survey. The central bank has lowered its key interest rate by 50 basis points this year to spur growth. In the U.S., Federal Reserve Chair Janet Yellen indicated last week that policy makers are on track to raising borrowing costs in 2015. The Federal Open Market Committee will next meet on July 29.

“Heading into the FOMC, I think the market continues to look for indications of a hike this year,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. In South Korea, “we are not putting in another rate cut in the forecast table, but we feel that, between hiking and easing, the bias is still toward easing,” she said.

The won fell 0.5 percent to close at 1,158.22 a dollar, according to data compiled by Bloomberg. It earlier dropped to 1,160.14, the weakest since June 2013.

ANZ may cut its year-end forecast of 1,160, Cheung said. With South Korea’s currency looking “increasingly stretched,” a short-term rebound may occur unless growth data disappoints greatly, Societe Generale AG strategists Jason Daw and Amit Agrawal wrote in a note on Tuesday.

The won weakened recently because of a stronger dollar and expectations of Fed tightening, Finance Minister Choi Kyung Hwan said in a briefing on Tuesday. The nation may revise measures controlling capital flows to curb outflows if such concerns rise, Choi said. In 2012, it tightened limits on the amount of currency forward positions banks can hold to stem short-term inflows.

The yield on government bonds due 2018 was unchanged at 1.78 percent, Korea Exchange prices show. The 10-year yield fell one basis point to 2.46 percent.

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