Won Drops Most Since Brexit as Dudley Reminds Fed Can Raise Rate

  • Odds of Fed increase this year rises to 51% from 36% on Aug. 1
  • Korea bonds fall, 1 trillion won sale of 50-year notes flagged

South Korea’s won tumbled the most since Britain voted to leave the European Union and the Malaysian ringgit slumped after Federal Reserve officials signaled they may increase interest rates this year, supporting the dollar.

The won led emerging-market currencies lower after New York Fed President William Dudley said on Tuesday policy makers may tighten as soon as next month, while his Atlanta counterpart Dennis Lockhart said at least one increase may be needed in 2016. Futures show the odds of a move this year have risen to 51 percent, from 36 percent at the start of August after recent U.S. data beat economists’ expectations. The won had jumped 1 percent on Tuesday before Dudley’s comments.

“Markets are repricing the Fed hike probability given the strong housing starts and industrial production data,” said Trinh Nguyen, a senior economist for emerging-market Asia at Natixis SA in Hong Kong. The won’s recent gains have been excessive and “the central bank is likely happy with some currency weakness,” she said.

Biggest Drop

The won slid 1.5 percent to 1,108.85 per dollar at the close of trading in Seoul, the biggest drop since June 24, according to prices from local banks compiled by Bloomberg. Korea’s currency appreciated to 1,091.07 on Aug. 10, the strongest since May 2015. The ringgit fell 0.4 percent to 4.0015 per dollar, according to prices from local banks.

The 14-day relative strength index of the dollar against the won dropped to 30 on Tuesday, the threshold that signals to some traders that the Korean currency was poised to fall.

“We’re edging closer towards the point in time where it will be appropriate, I think, to raise interest rates further,” Dudley, who serves as vice chairman of the rate-setting Federal Open Market Committee, said Tuesday on Fox Business Network.

The U.S. central bank next meets on Sept. 20-21.

Fed ‘Reminder’

“Comments being comments, they don’t necessarily mean the Fed will definitely hike,” said Christopher Wong, a foreign-exchange strategist at Malayan Banking Bhd. in Singapore. “They serve as a reminder that the September meeting is still ‘live.’”

South Korea’s bonds fell, with the 10-year note yield rising four basis points to 1.44 percent, according to prices from local banks compiled by Bloomberg. Malaysia’s 10-year yield was little changed at 3.50 percent, according to prices from Bursa Malaysia.

Korea’s Finance Ministry plans to sell about 1 trillion won ($903 million) of 50-year debt as soon as possible and will reduce issuance of 30-year securities to accommodate the sale of the longer maturities, according to a ministry official who declined to be named as discussions are yet to be finalized.

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