Korean Won Declines to Six-Week Low as Stock Outflows Mount

  • Overseas funds are net sellers of local shares for 10th day
  • Won also under pressure as importers buy dollars: Suhyup Bank

A rally in South Korea’s won on Tuesday spurred by the return of risk appetite following the Paris terror attacks has proven short lived.

The currency dropped to a six-week low as global funds offloaded more of the nation’s stocks ahead of a looming U.S. interest-rate increase, which futures show could happen as soon as next month. There was also speculation importers bought the greenback to take advantage of a more competitive rate after Tuesday’s 0.3 percent gain in the won.

"The stock market is the key, and we’re keeping an eye on when foreigners’ outflows will abate," said Jude Noh, chief currency trader at Suhyup Bank in Seoul. "Korean importers bought the dollars they need for bill settlement from the start of trading."

The won fell 0.2 percent to close at 1,172.22 a dollar in Seoul, data compiled by Bloomberg show. The currency dropped to 1,175.10 earlier, the lowest since Oct. 5. The Bloomberg Dollar Spot Index rose to the highest level since at least 2004 after U.S. consumer prices increased more than economists forecast in October, with odds for monetary tightening in December at 66 percent.

Overseas investors sold more South Korean shares than they bought for a 10th day on Wednesday, the longest run of outflows since mid-September, exchange data show. That took this month’s net sales to $830 million.

The Federal Reserve is “very likely” to raise its policy rate in December, Bank of Korea Governor Lee Ju Yeol said at a forum in Seoul on Tuesday. If the rate increase is combined with a rapid slowdown in the Chinese economy, global market uncertainty will rise “significantly” and a few emerging countries may experience a crisis, Lee said.

Government bonds rose. The three-year yield fell one basis point to 1.76 percent and the 10-year yield declined by the same amount to 2.29 percent , Korea Exchange prices show.

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