Korean Won Drops for Fourth Day on Fresh Fed Tapering Concern

The won fell for a fourth day, the longest losing streak since March, as better-than-forecast U.S. economic data bolstered the case for the Federal Reserve to cut stimulus that’s fueled fund flows to emerging markets.

The yield on South Korea’s three-year bonds rose by the most in a week after U.S. reports yesterday showed jobless claims fell to a five-year low and manufacturing expanded at the fastest pace in two years. The Fed said July 31 that it would maintain its $85 billion a month debt-buying program. South Korea’s growth momentum is “weak,” Finance Minister Hyun Oh Seok said yesterday as data showed the country’s trade surplus narrowed and industrial production fell.

“Investors are paying more attention to the U.S. economic data than the Fed’s words,” said D.J. Park, a fixed-income analyst at Samsung Futures Inc. in Seoul. “Because the data has been better-than-expected, the tapering concerns are back.”

The won closed at 1,123.79 per dollar in Seoul, compared with 1,123.51 yesterday, according to data compiled by Bloomberg. The currency declined 1.1 percent this week. The yield on the 2.75 percent bonds due June 2016 rose five basis points today and three basis points this week to 2.97 percent, the highest level since July 9, according to Korea Exchange Inc. prices.

Economic Data

South Korea’s trade surplus narrowed to $2.7 billion in July, compared with a revised $6 billion in June, according to government figures released yesterday. Industrial production fell 2.6 percent in June from a year earlier, Statistics Korea said July 30.

Data yesterday showed initial jobless claims declined to 326,000 in the week ending July 26 from 345,000 in the previous period, while the Institute for Supply Management’s U.S. factory index increased to 55.4 in July from 50.9 the prior month. The unemployment rate declined to 7.5 percent in July from 7.6 percent in June, according to the median estimate in a Bloomberg survey before data due today.

“Many overseas investors sold the won and South Korean bonds today,” said Jude Noh, chief currency trader at Suhyup Bank in Seoul. “Although it was disappointing that South Korea’s trade surplus has narrowed, the overall fundamentals are holding better than other emerging markets, which helped limit the outflows.”

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed eight basis points, or 0.08 percentage point, to 8.06 percent, data compiled by Bloomberg show. It increased 75 basis points this week.

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