Korean won weakens to 13-year level after Fed rate increase

South Korea’s currency weakened to a 13-year low against the U.S. dollar after the Federal Reserve’s interest-rate increase and projections spurred a risk-off mood in Asia.

The dollar
rose to as high as 1,410.05 against the won during morning Asian trading, the highest intraday level since March 2009, according to FactSet. The dollar was recently 0.7% higher at KRW1,407.98, while the Kospi stock index
was down 1.0% at 2323.70. The ICE U.S. Dollar Index
was up 0.9% at 111.60.

“The Korean won has historically tended to be the most sensitive Asian currency to both risk sentiment and the U.S. dollar,” Alvin T. Tan, head of Asian FX Strategy at RBC Capital Markets, said in an email. “So if we have both equities down and dollar up strongly, like we do currently, then Korean won will likely suffer the worst among Asian currencies,” Mr. Tan said.

The won’s weakness came after Fed officials voted unanimously overnight to raise the benchmark federal-funds rate by 0.75 percentage point to a range between 3% and 3.25%, a level last seen in early 2008. Almost all of the officials expect to raise rates further, to between 4% and 4.5% by year-end, according to new projections released Wednesday, suggesting large rate increases at policy meetings in November and December.

Write to Ronnie Harui at [email protected]

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