Won Falls a Third Week as Fed Rate Risk Spurs Capital Outflows

  • Currency rises on Friday as G-7 officials meet in Japan
  • Stocks drop a fourth week; bonds halt run of daily declines

South Korea’s won dropped for a third week in the longest stretch of losses since February on concern a U.S. interest-rate increase will spur capital outflows.

Overseas investors were net sellers of South Korean shares for a second week, helping drive the Kospi index to more than a two-month low as a raft of U.S. data backed the case for tighter monetary policy. Minutes of the Federal Reserve’s most recent meeting stirred speculation policy makers will raise rates as soon as next month, contributing to declines in emerging-market stocks and currencies.

The won depreciated 1.6 percent this week to 1,190.15 per dollar as of the 3 p.m. close in Seoul, prices from local banks compiled by Bloomberg show. It is down the most in Asia this month along with Malaysia’s ringgit. The Korean currency rose 0.1 percent on Friday as officials from the Group of Seven nations meet in Japan.

“U.S. economic data, comments and minutes from the Fed released this week strengthened the likelihood of a U.S. interest-rate hike and weighed on the won,” said Choi Sung Yoon, an analyst at Hyundai Futures Corp. in Seoul. “We are seeing the rebound today as the dollar’s move is rangebound and as investors await details from the G-7.”

Global funds offloaded a net $170 million of South Korean shares this week. The Kospi posted a fourth weekly loss.

Fed Policy

Interest-rate futures are showing a 28 percent chance of a Fed rate increase by June, compared with 4 percent on Monday. They’ve climbed to 47 percent for a move higher at the following meeting in July versus 19 percent at the start of the week. The Bloomberg Dollar Spot Index was steady on Friday after gaining 0.9 percent in the past two sessions. The gauge is near an eight-week high.

South Korea’s government bonds rose on Friday, halting a run of declines. The three-year yield dropped two basis points to 1.48 percent and the 10-year yield declined three basis points to 1.81 percent, Korea Exchange prices show.

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