Won Posts Biggest Two-Day Drop Since February as Fed, BOJ Loom

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  • South Korea seen reporting slower first-quarter GDP growth
  • Renewed strength in the dollar weighs on Asia currencies

The won posted its biggest two-day decline since February amid renewed strength in the dollar before the Federal Reserve’s meeting and a report that may show South Korea’s first quarter economic growth slowed.

The Bank of Japan will also be watched this week to see if it adds to monetary stimulus, while futures are showing zero percent odds that the U.S. Federal Open Market Committee will increase interest rates at its review. Any depreciation in the yen could put pressure on the won because the two nations compete in key export products. Greater weakness in one currency compared with another would give companies a competitive advantage.

"The won will continue to weaken until after the BOJ and FOMC meetings this week," said Jeon Seung Ji, a foreign-exchange analyst at Samsung Futures Inc. in Seoul. "But rather than just one-way weakening, volatility is expected. Month-end dollar sales by exporters and market reaction to central bank events can lead to volatility."

The currency depreciated 0.4 percent to close at 1,148.18 per dollar, taking its two-day loss to 1.3 percent, data compiled by Bloomberg show. That’s the biggest such decline since Feb. 17. The won has rallied 1.8 percent in the past month, the best performance after Malaysia’s ringgit among emerging-market Asian currencies.

South Korea’s gross domestic product increased 2.7 percent from a year earlier in the first quarter, compared with 3.1 percent in the prior period, according to the median estimate in a Bloomberg survey of analysts before Tuesday’s data.

The 10-year government bond yield rose one basis point to 1.83 percent, while the three-year yield slipped one basis point to 1.46 percent, Korea Exchange prices show.