Won Weakens to Two-Week Low on Bets Fed to Continue Tapering
South Korea’s won weakened to the lowest level in more than two weeks as comments by Federal Reserve officials signaled the monetary authority is unlikely to ease the pace of stimulus reductions.
Fed Bank of Dallas President Richard Fisher, who votes on policy this year, said Feb. 21 the central bank is providing “more than enough” monetary accommodation. Sales of previously owned U.S. homes dropped in January to the lowest since July 2012, figures showed the same day. South Korea and Australia have signed a currency-swap agreement for as much as 5 trillion won ($4.6 billion) or A$5 billion, Bank of Korea said yesterday.
“The market is paying attention to what Fed officials with voting rights say, and there is a bigger focus on further tapering,” said Bak Jae Sung, a currency dealer at Woori Bank in Seoul. “Local exporters selling the greenback and the currency swap with Australia will limit the won’s losses.”
The currency fell 0.5 percent to 1,077.10 per dollar as of 9:50 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,077.86 earlier, the weakest since Feb. 6. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 32 basis points to 7.72 percent.
St. Louis Fed President James Bullard, who doesn’t vote on the Federal Open Market Committee this year, said Feb. 21 the central bank is on target to continue scaling back stimulus, adding that soft economic data is probably due to bad weather. The Group of 20 nations said “monetary policy needs to remain accommodative in many advanced economies” and pledged a coordinated push to boost growth by more than $2 trillion over the next five years, according to a communique released after a meeting over the weekend.
The yield on South Korea’s 3.25 percent government bonds due September 2018 fell two basis points, or 0.02 percentage point, to 3.16 percent, according to Korea Exchange Inc. prices.