Korean Won Touches One-Week Low as Data Boost Fed Taper BetsYewon Kang
South Korea’s won touched a one-week low on bets the Federal Reserve will cut stimulus at a faster pace as the U.S. economy improves.
The Fed said “moderate” growth last month was supported by gains in holiday spending by consumers, an improving labor market and strength in manufacturing, according to the central bank’s Beige Book business survey released yesterday. A Labor Department report showed producer prices rose in December for the first time in three months to cap the smallest annual increase in five years.
The won declined 0.1 percent to 1,063.36 per dollar in Seoul, data compiled by Bloomberg show. It touched 1,065.55 earlier, the lowest level since Jan. 9. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.1 percent, rose 0.1 percent, taking its three-day gain to 0.9 percent.
“The Beige Book confirmed a better U.S. economic outlook and the PPI data supported the sentiment, prompting speculation the Fed may even accelerate the pace of tapering,” said Son Eun Jeung, a currency analyst at Woori Futures Co. in Seoul. “The stronger dollar will be supported for a while.”
One-month implied volatility in the won, a gauge of expected moves in the exchange rate used to price options, fell eight basis points, or 0.08 percentage point, to 6.23 percent.
Fed policy makers said Dec. 18 they will cut monthly bond purchases to $75 billion from $85 billion, citing an improving labor market. They will reduce the amount by $10 billion at each meeting this year before ending the program in December, according to a Bloomberg survey of economists conducted Jan. 10.
South Korean bonds are one of the better bets in Asia this year on the strong currency outlook, although emerging-market debt in general is likely to perform “quite poorly,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, said at a media briefing in Seoul today. Asia’s fourth-largest economy will grow as expansion in the U.S. and Europe’s recovery boost exports, he added.
Government bonds rose, with the yield on the 3 percent notes due December 2016 falling one basis point to 2.89 percent, according to Korea Exchange prices.