Won Snaps Two-Day Rally After June Output Falls; Bonds Steady

The won snapped a two-day gain after South Korea’s manufacturing fell and on concern the Federal Reserve may signal a reduction in stimulus that has fueled demand for emerging-market assets. Government bonds were steady.

Industrial production declined 2.6 percent in June from a year ago, Statistics Korea said today, compared with a 1.1 percent drop forecast in a Bloomberg survey. The current account surplus narrowed to $7.24 billion last month from a record $8.64 billion in May, the Bank of Korea said. Fed Chairman Ben S. Bernanke said this month that any tapering of bond buying would depend on the U.S. economy’s performance. The Federal Open Market Committee begins a two-day meeting today.

“The current-account surplus usually supports the won, but concern about the Fed’s tapering seem to have outweighed domestic news,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.

The won fell 0.3 percent to 1,113.81 per dollar in Seoul, according to data compiled by Bloomberg. The currency gained 2.5 percent this month and weakened 4.6 percent in 2013. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 22 basis points, or 0.22 percentage point, to 7.78 percent.

The Bank of Korea’s projection of a $53 billion current-account surplus this year is achievable, Jung Yung Taek, the central bank’s director-general, said at a media briefing in Seoul today. Barclays raised its full-year forecast to $54 billion from $35 billion, economist Wai Ho Leong wrote in a research note today.

Unprecedented and unconventional policies undertaken by major economies to cope with the global financial crisis have helped spur a recovery but are increasingly affecting other countries, Bank of Korea Governor Kim Choong Soo said yesterday in a speech in Busan. South Korea’s economy is more sensitive to external changes than other countries as exports account for more than half of the nation’s gross domestic product, Kim said.

The yield on the 2.75 percent government bonds due June 2016 was unchanged at 2.91 percent, according to Korea Exchange Inc. prices. It rose three basis points this month.

Before it's here, it's on the Bloomberg Terminal.