Won Drops the Most in a Week on Fed Tapering Concern; Bonds Fall

South Korea’s won fell the most in a week as global investors sold local shares on concern the Federal Reserve will rein in stimulus. Sovereign bonds declined.

The government said today it will strengthen monitoring of the currency market as the prospect of the U.S. tapering and the possibility of a hard landing in the Chinese economy pose risks to growth. A recovery in the nation’s private sector is weak, Finance Minister Hyun Oh Seok said in Seoul. Fed officials signaled this week that asset purchases could be cut next month. Philadelphia Fed President Charles Plosser and Cleveland Fed’s Sandra Pianalto are due to speak today.

The won fell 0.3 percent to 1,118.58 per dollar in Seoul, the biggest drop since July 31, data compiled by Bloomberg show. The currency earlier rose as much as 0.2 percent. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 21 basis points, or 0.21 percentage point, to 6.92 percent.

“Offshore investors sold won-denominated assets after Fed officials’ comments on the tapering strategy yesterday and ahead of speeches by other Fed chiefs,” said Han Sung Min, a currency trader at Busan Bank in Seoul.

Overseas investors sold more South Korean shares than they bought for a second day following 11 straight days of net purchases, exchange data show. Global funds were net buyers of 1.3 trillion won ($1.2 billion) of local stocks and 1.7 trillion won of bonds in July, the Financial Supervisory Service said in a statement today.

Fed Officials

Fed Bank of Chicago President Charles Evans, among the strongest proponents of the monetary accommodation in the U.S., said yesterday he “would clearly not” rule out a decision to begin curbing asset purchases in September. Dallas Fed President Richard Fisher said on Aug. 5 the central bank is closer to slowing $85 billion in monthly bond buying and warned investors not to rely on the stimulus that has fueled demand for emerging-market assets.

The yield on the 2.75 percent bonds due June 2016 rose four basis points, or 0.04 percentage point, to 2.95 percent, the first increase this week, according to Korea Exchange Inc. prices.

Bank loans to households rose to a record 470 trillion won, the Bank of Korea said today. The monetary authority is forecast to hold interest rates at 2.5 percent at a policy meeting tomorrow, according to 15 analysts surveyed by Bloomberg.

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