Korean Won Strength Seen Short-Lived as Fed Takes Center Stage

  • Exports report next week to show 11th month of contraction
  • Won falls in November as global funds pull cash from stocks

A second weekly gain in South Korea’s won will prove short-lived as investors once again turn their focus to the prospect the U.S. will raise interest rates next month, according to Daishin Economic Research Institute.

Global funds have dumped a net $991 million of local shares this month in anticipation of such a move by the Federal Reserve, helping weaken the won by 1.1 percent in November. The currency rose this week on speculation exporters sold dollars as they booked overseas earnings before month-end, with the outlook seeming gloomy as a report next week may show shipments contracted for an 11th straight month.

“Exporters’ dollar sales curbed the won’s weakness this week, while the currency lacked clear direction amid quiet trading due to the U.S. Thanksgiving Day holiday," said Hong Seok Chan, a foreign-exchange analyst at Daishin Economic Research in Seoul. “As the year-end nears, the won will face weakening pressure as investors rebuild dollar-buying bets ahead of the Fed meeting."

The won appreciated 0.1 percent from Nov. 20 to close at 1,153.00 a dollar in Seoul, data compiled by Bloomberg show. The currency rose to 1,141.88 on Thursday, the strongest since Nov. 6. Hong said the won will trade between 1,145 and 1,170 next week.

South Korea’s currency dropped to a one-month low last week and was down 0.5 percent on Friday. Tuesday’s report may show exports fell 7.7 percent in November from a year earlier, according to the median estimate of economists surveyed by Bloomberg, less than the 15.9 percent contraction the previous month.

Shipments are expected to continue to decline amid slowing growth in China, according to the Bank of Korea’s quarterly report issued on Thursday. China is the nation’s biggest trading partner. Korea’s economy showed a gradual improvement in November and October, the BOK said.

South Korea’s 10-year government bonds fell this week, with the yield rising two basis points to 2.27 percent, Korea Exchange prices show. It fell eight basis points last week, the most since August.

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