Korean won drops to 3-week low vs. dollar on BOJ move, bets for early rate hike by Fed

The South Korean won sank to a three-week low against the U.S. dollar Friday, falling for the second consecutive day as Japan's central bank announced a further monetary easing and sound growth data from the U.S. raised the possibility that the Federal Reserve may advance its timetable for a much-awaited rate hike.

Following the Bank of Japan's move, the local currency advanced sharply against the Japanese yen.

The Korean won closed at 1,068.50 to the greenback, sharply down 13 won from the previous session's close and the lowest since Oct. 10, when the comparable figure was 1,070.50 won.

Earlier in the day, the Bank of Japan said it would jack up its asset purchases by up to 20 trillion yen to some 80 trillion won in order to boost the sagging growth in the world's No. 3 economy.

"The won-dollar rate may exceed the 1,070 won level next week, possibly breaking through the 1,080 won threshold," said Chung Kyong-pal, an analyst at KEB Futures Co.

Further supporting the dollar's strength was sound economic growth from the U.S.

Data on Thursday showed the world's largest economy grew 3.5 percent in the third quarter, topping the market estimate of a 3 percent expansion, underpinning the greenback against its major peers.

Market players are betting on the rate hike after the Federal Open Market Committee (FOMC), a policymaking body of the Fed, decided Wednesday to stop its monthly purchase of US$15 billion worth of bonds, introduced to boost the U.S. economy, from next month.

The local currency has been losing ground to the dollar since late September on speculation that the Fed may accelerate its moves to raise borrowing costs, although its loss has eased somewhat recently on end-month dollar selling by local exporters.

The local currency, meanwhile, advanced against the Japanese yen, trading at 962.85 per 100 yen as of 3:04 p.m., up 3.54 won from the previous session's close, following the BOJ's unexpected move.

South Korean President Park Geun-hye warned earlier this week that Asia's fourth-largest economy faces the risk of a long-term low growth trend, citing a weak Japanese yen, low inflation, and a fast-aging population as key drags on the economy.

South Korean exporters compete directly with Japanese rivals in overseas markets in products ranging from electronics to autos.

South Korea's currency authorities said they are closely watching the won-yen rate, registering concerns that the Fed's termination of its bond purchasing scheme and the BOJ's further monetary easing could increase currency volatility. (Yonhap)