Korean Won Trades Near Four-Month High Before BOK; Bonds Rise

South Korea’s won was little changed near a four-month high as investors refrained from betting strongly on the currency’s direction ahead of the central bank’s rate decision tomorrow.

Government bonds advanced as some economists forecast borrowing costs will be cut. Ten out of 16 surveyed by Bloomberg forecast the benchmark rate will stay at 3.25 percent, while the rest forecast a 25 basis point cut. The Bank of Korea unexpectedly lowered borrowing costs for the first time in more than three years last month. Economic indicators show growth is slowing and policies will be focused on spurring domestic demand, Finance Minister Bahk Jae Wan said at a meeting in Seoul today.

“We didn’t see aggressive bets on one position today as the rate meeting is coming up,” said Jeon Seung Ji, a Seoul- based currency analyst for Samsung Futures Inc. “There was some dollar selling as the Kospi Index rose, but importers buying the greenback to settle bills limited currency gains.” The Kospi Index (KOSPI) rose 0.9 percent.

The won closed at 1,128.30 per dollar in Seoul, from 1,128.78 yesterday, data compiled by Bloomberg show. It touched 1,124 on Aug. 6, the strongest level since April 3. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, fell 25 basis points, or 0.25 percentage point, to 7.08 percent.

The yield on the government’s 3.25 percent bonds due June 2015 fell two basis points to 2.76 percent, Korea Exchange Inc. prices show. Three-year debt futures advanced 0.04 to 106.30 and the one-year interest-rate swap rose two basis points to 2.83 percent.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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