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South Korean Won Completes Best Week Since July on Growth Data; Bonds Fall
South Korea’s won had its biggest weekly gain since July after data this week allayed concern growth in Asia’s fourth-largest economy may ease. Three-year bonds slid this week.
The currency rose for a third straight day as official data showed the economy expanded at almost the same pace in the second quarter as earlier estimated, boosting expectations the Bank of Korea will raise borrowing costs when it meets next week. The International Monetary Fund this week raised the nation’s economic growth forecast for 2010 and said the won remains “undervalued.”
“The Korean data is very good, and the outlook is very positive,” said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. “But the government is not very happy with a very fast gain in the won.”
The won strengthened 1.8 percent this week, the most since the five-day period ended July 9, to 1,175.10 per dollar as of the 3 p.m. close in Seoul, according to data compiled by Bloomberg. It gained 0.5 percent today. The currency, which has advanced 3.1 percent so far this quarter, may trade between 1,170 and 1,200 for the rest of the month, Ko predicted.
The Bank of Korea will raise its benchmark interest rate by 25 basis points to 2.5 percent at its Sept. 9 meeting, according to seven out of 11 economists in a Bloomberg News survey. Four forecast no change.
Yields Climb
Gross domestic product grew 1.4 percent over the three months to June from the first quarter, compared with a July estimate of 1.5 percent, the Bank of Korea said today. The economy grew 7.2 percent from a year earlier, matching the earlier assessment. Industrial production had a 13th monthly gain in July and exports increased for a 10th successive month in August, government data showed this week.
The IMF increased its growth forecast for South Korea’s gross domestic product to 6.1 percent for 2010 from a July estimate of 5.75 percent. The central bank raised its benchmark rate on July 9 for the first time since the global financial crisis to 2.25 percent.
South Korea’s government bonds declined over the past five days, snapping a three-week rally. The yield on the 3.75 percent note due in June 2013 rose nine basis points to 3.64 percent, according to prices from Korea Stock Exchange. A basis point is 0.01 percentage point.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.
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