Won Falls to One-Month Low on Fed Policy Risk; Bonds Decline

South Korea’s won fell to a one-month low on concern U.S. policy makers will reduce monetary stimulus that has fueled demand for emerging-market assets. Government bonds fell.

The dollar strengthened against all major peers and Treasury yields rose to the highest in two months after Federal Reserve Chairman Ben S. Bernanke said yesterday the central bank may taper monthly bond purchases if it’s confident of sustained gains in the U.S. economy. South Korea’s economy is still going through a “slump” and a sliding yen is hurting the nation’s exports, Finance Minister Hyun Oh Seok said today.

The won dropped 0.7 percent to 1,121.71 per dollar as of 10:44 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,124.01, the lowest level since April 22. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 42 basis points, or 0.42 percentage point, to 8.95 percent, the data show.

“Bernanke’s comments were a signal for investors to pull out of riskier assets,” said Hong Seok Chan, an analyst at Daishin Economic Research Institute in Seoul. “The won may trade near the 1,120 per dollar level as some exporters may sell dollars.”

The Fed could “take a step down in our pace of purchases” from $85 billion a month in the “next few meetings,” Bernanke said yesterday in a testimony to the Joint Economic Committee of Congress in Washington. He defended the central bank’s record stimulus program, telling lawmakers that ending it prematurely would endanger a recovery hampered by high unemployment and government spending cuts.

Dollar, Yen

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, added 0.1 percent to 84.438. The yen weakened 0.2 percent to 103.37 per dollar.

The won has fallen 5.1 percent versus the dollar and gained 14 percent against the yen this year. That makes it harder for South Korean exporters such as Samsung Electronics Co. and Hyundai Motor Co. to compete against Japanese rivals overseas.

“The fact that the won is not a key currency exposes the Korean economy to foreign-exchange risks,” Finance Minister Hyun said at a forum in Seoul. The yen’s slide against the dollar has had a “considerable impact on our exports,” he said.

The yield on South Korea’s 2.75 percent government bonds due March 2018 rose four basis points to 2.74 percent, according to prices from Korea Exchange Inc.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51

To contact the editor responsible for this story: James Regan at jregan19