South Korea’s won declined the most in a week on speculation a U.S. interest-rate increase will exacerbate capital flight just as Asia’s fourth-largest economy is slowing.
Global funds extended sales of Korean stocks this week, taking net outflows so far in July to $1.9 billion and teeing up the Kospi index of shares for its worst monthly slide of 2015. The Bloomberg U.S. Dollar Spot Index was trading 0.2 percent shy of a four-month high after the Federal Reserve showed no sign it will refrain from tightening monetary policy this year, only saying the decision will be data dependent.
The won fell 0.8 percent, the most since July 23, to close at 1,168.22 a dollar in Seoul, according to data compiled by Bloomberg. The currency is down 4.5 percent this month, while the Kospi has lost 2.7 percent.
“Downward pressure on the won will increase after the Fed meeting,” said Kim Moon Il, an analyst at Eugene Investment & Securities Co. in Seoul, who predicted the currency’s fall to 1,168 Thursday. “Expectations for higher U.S. rates will prompt investors to move to dollar assets.”
South Korea’s Deputy Finance Minister Choi Hee Nam convened a meeting Thursday morning to discuss the outcome of the Fed’s meeting on Wednesday and the potential impact on the economy, which slowed in the three months through June for a fifth straight quarter.
South Korea’s 10-year government bonds fell, with the yield rising two basis points to 2.39 percent, Korea Exchange prices show. The three-year yield also climbed two basis points to 1.74 percent.