Korean Won Declines for a Third Week as Outflow Concerns Mount

  • Foreigners net sellers of local stocks for fourth day in a row
  • Bonds drop this week: 10-year yield rises to three-month high

The won fell for the third straight week amid speculation capital outflows will increase as the Bank of Korea holds borrowing costs while the U.S. prepares to raise rates.

Foreign funds were net sellers of stocks on the Kospi index for the fourth day on Friday and have pulled $563 million this week. The BOK held its policy rate at 1.5 percent on Thursday and said it expects the economy to gradually improve as consumer sentiment recovers. In the U.S., futures contracts are showing a 66 percent chance of a rate increase in December and 84 percent odds of one by the end of the first quarter of 2016.

The won fell 1.9 percent this week and 0.5 percent on Friday to close at 1,163.60 a dollar in Seoul, data compiled by Bloomberg show. It has dropped 3.3 percent in three weeks, paring its gain for the quarter to 1.9 percent.

“The BOK’s view on the domestic economy is optimistic and lowers the odds for further monetary easing at least by the end of this year,” said Yuna Park, a currency and fixed-income analyst at Dongbu Securities Co. in Seoul. “Attention is all on what will happen to foreign investor flows to Korean markets when the U.S. raises rates,” she said, adding that the won could decline to 1,170 a dollar next week.

Lending Jumps

BOK Governor Lee Ju Yeol said in a press briefing on Thursday that he disagrees with the view that Korea needs interest rates near zero because negative effects may follow.

South Korea’s unemployment rate fell to 3.4 percent in October, the lowest since January, a report showed this week. Bank loans to households rose 9 trillion won ($7.7 billion) in October, the biggest increase in data going back to the beginning of 2014.

Government bonds fell this week, pushing the three-year yield up five basis points to 1.78 percent, Korea Exchange prices show. It was steady on Friday. The 10-year yield advanced 14 basis points from Nov. 6 to a three-month high of 2.34 percent. The nation’s local-currency debt has returned 4.4 percent this year, according to a Bloomberg index.

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