Korea Won Gains on Bets ECB to Ease Policy; Bonds Advance
South Korea’s won strengthened to an eight-week high as stocks rallied on expectations global monetary authorities will ease policy to spur economic growth.
The European Central Bank will cut its benchmark interest rate by at least a quarter of a percentage point at its July 5 meeting, according to 51 of 62 forecasts in a Bloomberg survey. South Korea’s foreign-exchange reserves rose to $312.4 billion in June from $310.9 billion in May, the central bank said today. Government bonds advanced after manufacturing in the U.S. unexpectedly shrank in June, with the Institute for Supply Management’s index falling to 49.7.
“Expectations that the ECB may act to boost the economy at this week’s meeting are supporting the won,” said Byeon Ji Young, a Seoul-based currency analyst for Woori Futures Co. “The weak U.S. manufacturing data isn’t weighing on sentiment that much as it also raises speculation about the Federal Reserve’s policies.”
The won strengthened 0.7 percent to 1,138.29 per dollar at the close in Seoul, according to data compiled by Bloomberg. It touched 1,137.68 earlier, the strongest since May 8. The currency’s one-month implied volatility, a measure of exchange- rate swings used to price options, dropped 35 basis points, or 0.35 percentage point, to 7.28 percent.
The currency extended gains after South Korea’s Hyundai Heavy Industries Co., the world’s biggest shipbuilder, won an order to build 10 mega-container vessels for $1.2 billion, the biggest new contract for the type industrywide in a year. There could be dollar-selling in advance as the company hedges the expected U.S. currency payments, according to Kim Seong Soo, a Seoul-based trader for Kyongnam Bank. The Kospi Index (KOSPI) gained 0.9 percent.
The yield on the government’s 3.5 percent bonds due March 2017 fell three basis points to 3.40 percent, Korea Exchange Inc. prices show. Three-year debt futures climbed 0.03 to 104.75 and the one-year interest-rate swap was steady at 3.35 percent.
“The optimism after Europe’s summit last week is fading, and weak data out of the U.S. yesterday spread economic slowdown concerns,” said Lee Gil Won, a Seoul-based bond trader for Shinhan Bank. “There were unidentified rumors today that big overseas funds bought Korean debt, and some investors covered their short position on bonds.” A short position is a bet an asset will decline.
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