Won Posts Worst Monthly Decline Since July; Korea Output Shrinks

  • Stock inflows slow as Fed prepares to raise interest rates
  • Won to trade in 1,180-1,200/USD range this week - Daewoo

South Korea’s won posted its biggest monthly loss since July as global funds further reduced their holdings of local stocks amid greater odds for a U.S. interest-rate increase.

The outlook for South Korea’s economy dimmed after a report showed factory output contracted in April by more than economists estimated. Exports probably continued to decline this month, data Wednesday may show. The central bank kept borrowing costs at a record-low in May, despite slowing first-quarter growth. A gauge of the dollar headed for its largest monthly gain since September 2014 on prospects the Federal Reserve will tighten policy in the next two months.

“Industrial output data was disappointing,” said Suh Dae Il, an economist at Mirae Asset Daewoo Securities in Seoul. “Korea’s key economic indicators are not showing strength and this will weigh on the won."

The won closed little changed at 1,191.73 per dollar in Seoul, prices from local banks compiled by Bloomberg show. The currency dropped 4.4 percent in May, the worst performance in Asia after Malaysia’s ringgit. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was up 3.5 percent for the month as of 3:32 p.m. local time.

Suh said the won will trade in a range of 1,180 to 1,200 per dollar this week.

Purchases of South Korean stocks slowed to a net $108 million in May from $1.8 billion in April and more than $3 billion in March. Bonds fared better, with inflows of $1.6 billion. Still, a Bloomberg index of local-currency debt took a pause after a five-month advance.

The three-year government yield was little changed on Tuesday at 1.5 percent and was five basis points higher for the month, Korea exchange prices show. The 10-year yield climbed two basis points in May to 1.81 percent.

Industrial production fell as weak exports and corporate restructuring of shipbuilders continue to hurt demand and business sentiment, data showed Tuesday. Output dropped 2.8 percent from a year earlier, compared with a 1.3 percent decline estimated by economists in a Bloomberg survey.

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