Korea's Won Declines to Two-Month Low Before BOK Reviews Policy

  • Central bank forecast to hold benchmark rate on Thursday
  • South Korean regulators review markets before Fed meeting

South Korea’s won declined to a two-month low as traders waited for signals on the Bank of Korea’s monetary policy outlook for next year even as the U.S. prepares to raise interest rates.

Financial regulators met Wednesday to review markets before a Federal Reserve meeting next week, which futures contracts predict will see an increase in borrowing costs. The BOK reported that household lending, which the authority is monitoring, climbed to an unprecedented level in November. South Korea’s central bank will keep its benchmark rate at a record-low 1.5 percent for a sixth straight month on Thursday, according to all 17 economists surveyed by Bloomberg.

The won dropped 0.1 percent to close at 1,179.24 a dollar in Seoul, data compiled by Bloomberg show. It fell to 1,180.07 earlier, the weakest since Oct. 2, and has declined 6.8 percent this year. The dollar’s 14-day relative strength index versus the won was at 63.1 on Tuesday, compared with the 70 level that signals the greenback may have climbed too fast, too soon.

"We’re watching for cues from the authorities as some traders think the won’s drop has been too steep, even though the overall sentiment still supports a strong dollar," said Kim Dae Hun, a currency trader at Busan Bank in Seoul. "The main focus is on foreigners selling local stocks until the Fed meeting."

Overseas investors sold more local shares than they bought for a sixth day, taking net sales this quarter to more than $2.5 billion. South Korea will closely monitor its economy and financial markets for external uncertainties such as the outlook for U.S. interest rates and China’s economic slowdown, the Finance Ministry said in a monthly economic report released Wednesday.

Five-year government bonds were little changed, with the yield at 1.95 percent, Korea Exchange prices show.

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