Korea’s stock market and local currency could retreat instead of rally after the U.S. Federal Open Market Committee set a firmer stance on its monetary stimulus, analysts and policymakers said.

The benchmark KOSPI fell 1.43 percent to 2,030.09 on Thursday following overnight losses on Wall Street where the Dow Jones Industrial Average closed Wednesday at 15,618.76, down 0.39 percent. The Korean won lost 0.5 won closing at 1060.7 won to the U.S. dollar, as demand for the greenback rose as foreign investors unloaded domestic equities.

Although the FOMC decided to maintain its $85 billion monthly bond purchasing program until its key indicators including employment improved, it said that the world’s largest economy is improving despite “federal fiscal retrenchment” stemming from the budget and debt-ceiling fiascoes.

“Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy,” the FOMC said in a statement.

“However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

Its statement was perceived as less dovish than expected by investors and analysts, forecasting that the U.S. Federal Reserve may turn hawkish by tapering its quantitative easing sooner than the general market consensus as its economy recovers.

Bank of Korea Gov. Kim Choong-soo suggested that the Federal Reserve’s position would remain unchanged on continuously printing and pumping money into the financial markets as its unemployment rate has not yet fallen to its target of around 6 percent.

The U.S. jobless rate for September recorded 7.2 percent, the lowest in almost five years. But the number of jobs created fell short of expectations.

The governor added that a fall in stocks on Wall Street following the FOMC’s decision, however, indicated that global investors accepted the reality that the tapering was inevitable in the near future.

This could also set the Korean stock market, which has been rallying led by record-breaking foreign investments, on a “reverse course.”

“Now, this means that the market could go in the opposite position,” BOK Gov. Kim said in a meeting with chief executives of conglomerates on Thursday.

An exodus of foreign capital from emerging markets should the tapering begin in the U.S. could cause a sudden “foreign exchange problem” as they have little financial clout to offset an excessive depreciation of their currencies, warned Dominique Strauss-Kahn, former chief of the International Monetary Fund.

By Park Hyong-ki (hkp@heraldcorp.com)