The South Korean currency fell 1.3 percent against the U.S. dollar on Thursday as remarks by the head of the Federal Reserve on possible reductions in bond purchases spurred demand for the greenback, dealers said.

The local currency closed at 1,128.70 won per the greenback, down 14.70 won from Wednesday’s close.

It marked the weakest level since April 12 when the Korean won hit 1,129.10 against the dollar. It also was the sharpest daily fall since May 10.

Market watchers said that the dollar gained ground as Fed Chairman Ben Bernanke hinted that the central bank could wind down its monthly bond purchase if the world’s largest economy improves.

The won’s weakness also further expanded in the late trading as market players unloaded the won and snapped up the yen to cover losses after weak manufacturing data in China raised concerns about the global slowdown.

“The dollar gained ground on the prospect that the Fed might wind down its economic stimulus program within this year,” said Jeon Seung-ji, a currency analyst at Samsung Futures Co.

Fed Chairman Bernanke told Congress Wednesday that a premature tightening of monetary policy could raise risks for slowing the economic recovery.

But he also told lawmakers that the Fed could slow its pace of $85 billion monthly bond purchase at one of its “next few policy meetings” if the U.S. economy improves further.

The global financial markets showed a skittish reaction to Bernanke’s remarks as traders put more weight on the possibility of the Fed’s cut in bond purchases within a few months.

Korea’s financial markets have showed high volatility recently amid the yen’s sliding trend and speculation about the Fed’s possible policy shift.

Bank of Korea Gov. Kim Choong-soo said Wednesday that the potential end of the Fed’s massive monetary easing drive could spark risks from rising bond yields, increasing the need to brace for the impacts of such a policy shift.

The Korean government is closely watching the global market trend as the winding down of the Fed’s quantitative easing steps could increase market jitters, raising chances that foreign capital could suddenly leave from the local financial markets.

Korea’s key stock index declined 1.24 percent to end at 1,969.19 and foreign investors dumped a net 12.7 billion won worth of local stocks from the main bourse.

“Korea’s currency market is likely to undergo high volatility with the possibility that the won may weaken to 1,130 won level,” Jeon added. (Yonhap News)