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Taiwan Dollar Forwards Snap Five-Day Advance Before Fed Decision

Taiwan dollar forwards snapped a five-day advance before the Federal Reserve concludes a two-day meeting, where U.S. policy makers may consider steps including asset purchases that would boost fund supply.

The Fed may announce a third round of debt-buying today in a policy known as quantitative easing, according to almost two- thirds of economists in a Bloomberg survey. Government bonds were little changed after South Korea unexpectedly left interest rates unchanged, adding to speculation Taiwan’s policy makers will hold borrowing costs at a review later this month.

“The Fed meeting tonight creates a pretty big event risk,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “Investors are getting more cautious.”

One-month non-deliverable forwards for Taiwan’s dollar dropped 0.3 percent to NT$29.59 against the greenback as of 4:10 p.m. local time, according to data compiled by Bloomberg. That’s a 0.4 percent premium to the spot rate, which slipped 0.1 percent to NT$29.699.

Implied volatility in the currency for one-month was little changed at 3.6 percent. The measure is a gauge of exchange-rate swings used to price options.

The Bank of Korea kept the seven-day repurchase rate at 3 percent today, a decision predicted by only one of 16 economists surveyed by Bloomberg News. Taiwan’s monetary authority, which has kept its benchmark rate at 1.875 percent since June 2011, will meet to evaluate policies by the end of this month.

Bank of Korea has a track record of surprising the market,” said Eric Hsing, a fixed-income trader at First Securities Inc. in Taipei. “Traders are expecting Taiwan’s central bank to keep rates unchanged too.”

The yield on Taiwan’s 1.125 percent notes due September 2022 was at 1.186 percent, according to Gretai Securities Market. Benchmark 10-year note reached 1.189 percent yesterday, the highest level since Aug. 21.

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

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

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