The won dropped to the lowest in two years after Fitch Ratings cut South Korea’s growth forecast and on signs the Federal Reserve will raise interest rates this year.
Fed Chair Janet Yellen testifies before Congress on Wednesday and Thursday after saying on Friday that an interest-rate increase in 2015 remains appropriate. Higher U.S. borrowing costs will damp demand for emerging-market assets. Fitch revised its 2015 expansion estimate to 2.9 percent on Monday, from 3.5 percent, while affirming the nation’s sovereign assessment at the fourth-highest level of AA-.
“The dollar’s strengthening due to the Fed rate outlook,” said Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc. “We already expected the growth outlook for South Korea would be lower than forecast earlier.”
The won dropped 1 percent to close at 1,142.06 a dollar, in Seoul, data compiled by Bloomberg show. The currency earlier reached 1,142.09, the lowest since July 10, and has declined 4.5 percent this year. The Bloomberg Spot Dollar Index, which tracks the greenback against 10 peers, has risen 0.8 percent this week.
“Both local and offshore investors jumped into buy dollars,” said Jude Noh, a chief currency trader at Suhyup Bank in Seoul. “The won could easily weaken to 1,150.”
The Bank of Korea cut its gross domestic product expansion estimate for 2015 to 2.8 percent on July 9, from an April projection of 3.1 percent.
South Korea’s credit outlook is stable and its rating is backed by strong macro-economic performance, moderate government debt and strong external balances, Fitch said Monday.
The three-year yield dropped one basis point to 1.80 percent, while the yield on South Korea’s bonds due June 2025 was steady at 2.51 percent, Korea Exchange prices show.
original source: http://www.bloomberg.com/news/articles/2015-07-14/korean-won-declines-most-in-five-weeks-on-fed-rate-rise-signs