Won Drops Toward Six-Month Low as Fed Sounds Growth Concern

South Korea’s won fell toward a six-month low amid a decline in equities after Federal Reserve officials reiterated that U.S. economic expansion may be threatened by a slowdown overseas.

Global funds pared their holdings of South Korean equities for a seventh day, sending the Kospi index toward its lowest close since March, following comments from Fed Vice Chairman Stanley Fischer that weaker foreign growth may prompt the U.S. central bank to delay any interest-rate increases. The MSCI Asia Pacific excluding Japan Index of regional stocks fell 0.4 percent today.

The won dropped 0.1 percent to 1,071.68 per dollar as of 9:46 a.m. in Seoul, according to prices compiled by Bloomberg. It declined to 1,074.75 on Oct. 8, the weakest level since March 27. One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, rose 31 basis points, or 0.31 percentage point, to 8.01 percent.

“The risk-averse sentiment is driving the won’s losses, but 1,075 won per dollar will be the resistance level as local exporters are seen selling the greenback near this rate,” said Park Daebong, a Seoul-based currency trader at Nonghyup Bank. “The won can weaken further if the Kospi extends its decline and sparks concern over capital outflows.”

Fischer’s remarks, echoed by other Fed officials, came days after minutes of the central bank’s September meeting showed authorities highlighting concern over risks posed to the economy by deteriorating expansion abroad and a stronger dollar, which could hurt exports and damp inflation.

The Bank of Korea will probably lower its benchmark rate by 25 basis points on Oct. 15 to 2 percent, according to 12 of 21 economists surveyed by Bloomberg. One predicts a smaller reduction while the rest see no change. The central bank and government have similar views on the economy, Yonhap News yesterday cited BOK Governor Lee Ju Yeol as saying.

Government bonds declined, with the yield on the 2.75 percent notes due June 2017 rising one basis point to 2.27 percent. The yield on five-year debt climbed one basis point to 2.47 percent, Korea Exchange prices show.

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