Won Slides This Week as Oil Damps Risk With Fed Poised to Hike

  • Global investors continue to pull funds from Korea stocks
  • Ten-year government bond yield falls most in four months

South Korea’s won posted the biggest weekly loss since September as a slump in oil prices and a looming U.S. interest-rate increase damped risk appetite, driving up the nation’s bonds.

Global investors have pulled a net $1.7 billion from South Korean shares this month and the country is set to see its first annual outflow in four years, stock exchange data show. Futures contracts indicate 76 percent odds the Federal Reserve will raise borrowing costs next week, and Bank of Korea Governor Lee Ju Yeol said Thursday the nation has a contingency plan to prepare for that outcome. The central bank will monitor the currency market to contain risks, he said, after leaving the benchmark rate at a record low.

"The won’s drop was quite steep as foreign investors bought dollars to repatriate the funds from stock sales," said Yuna Park, a foreign-exchange and fixed-income analyst at Dongbu Securities Co. in Seoul. "Risk-sentiment is weak on tumbling oil prices when all eyes are on the U.S. monetary policy meeting."

The currency decreased 2 percent from Dec. 4 to close at 1,179.55 a dollar in Seoul, and is leading a decline in Asia this month with a loss of 1.8 percent, according to data compiled by Bloomberg. It earlier fell to 1,182.12, the lowest since October. The won rose on Friday, halting a four-day drop.

Prospects for further outflows are limited, Vice Finance Minister Joo Hyung Hwan said at a forum in Seoul on Friday, adding that the government is monitoring capital movements. Dongbu Securities’ Park predicts the won will trade between 1,165 and 1,190 next week.

A slump in prices of resources such as oil is spurring global risk aversion, with the Bloomberg Commodity Index just shy of a 16-year low reached earlier in the week. Brent crude has tumbled 8 percent from Dec. 4, and touched levels not seen since 2009 as it dropped below $40 a barrel.

South Korea’s Kospi index of shares declined 1.3 percent this week, while government bonds rose. The 10-year yield fell eight basis points to 2.24 percent, the steepest drop in four months, Korea Exchange prices show.

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