Won Falls a Third Week Pressured by Yuan's Drop, Higher Fed Rate

  • South Korean currency has fallen most in Asia in December
  • Taiwan rate cut boosts chance BOK will follow: Barclays

South Korea’s won dropped for a third week as depreciation in the yuan weighed on Asian currencies and after the Federal Reserve raised interest rates.

Many regional economies count China as their biggest trading partner and would want to keep exchange rates competitive to maintain market share. The won has declined 2.1 percent this month, the steepest loss among Asia’s 10 most-active currencies, while the yuan fell 1.2 percent. The Bloomberg Dollar Spot Index headed for its best weekly gain since early November after the U.S. increased its benchmark rate, reducing the allure of assets elsewhere.

“For Asian currencies, and the won in particular, the continued decline in the yuan is having an impact,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “That’s putting pressure on Asian currencies, particularly those with close export ties to China."

The won dropped 0.3 percent this week and on Friday to 1,183.10 a dollar in Seoul, data compiled by Bloomberg show. Overseas investors were net sellers of Korean stocks on Friday and have pulled $2.4 billion in December, exchange data show.

Rate Cut

Taiwan, which competes with South Korea in international markets, cut its benchmark interest rate for the second time this year on Thursday. The Bank of Korea has lowered its policy rate four times since August 2014 to a record 1.5 percent and a third of analysts surveyed by Bloomberg see at least one more reduction in the first half of 2016.

“With the yuan weakening, and Taiwan cutting, that’s raising expectations for the BOK to cut and the Korean won to weaken much more," said Wai Ho Leong, a senior regional economist in Singapore at Barclays Plc.

South Korea’s government bonds rose. The 10-year yield fell 13 basis points this week and six basis points on Friday to 2.11 percent, Korea Exchange prices show. That’s the lowest level for a benchmark of that maturity since Oct. 29. The three-year yield declined five basis points from a week earlier to 1.7 percent.

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