Won Falls Most in Three Weeks on Outflow Concern; Bonds Climb

South Korea’s won fell the most in almost three weeks on concern a reduction of U.S. stimulus will spur outflows from emerging markets. Government bonds gained.

The Bloomberg-JPMorgan Asia Dollar Index dropped for a fourth day before the Federal Open Market Committee releases minutes of its July meeting tomorrow. The Fed will start tapering bond buying next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13. Korean exports rose 2.6 percent last month, while inflation has remained below 2 percent since October, official data show.

“Asian currencies are weakening and volatility is rising as investors are still trying to interpret the Fed’s exit strategy,” said Cho Young Bok, a currency trader at Daegu Bank in Seoul. “The won may hold better than other emerging currencies based on South Korea’s fundamentals. Nonetheless, the overall concern in Asian markets is affecting sentiment.”

The won fell 0.5 percent to 1,120.85 per dollar in Seoul, the biggest decline since July 31, according to data compiled by Bloomberg. It has strengthened 1.9 percent this quarter, the best performance after Japan’s yen among Asia’s 11 most-traded currencies. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 47 basis points, or 0.47 percentage point, to 7.81 percent.

Some $8.4 billion of exchange-traded funds were pulled from developing countries and nearly $95 billion was pumped into ETFs of U.S. shares this year, data compiled by Bloomberg show.

The yield on the 2.75 percent bonds due June 2016 dropped five basis points, or 0.05 percentage point, to 2.94 percent, Korea Exchange Inc. prices show.

“South Korea is thought to be safer compared to other emerging markets on solid fundamentals,” said Yoon Yeo Sam, a fixed-income analyst at Daewoo Securities Co. in Seoul. “That is why the won and bonds fared relatively well.”

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