Korean Won Falls as Intervention Concern Counters China Optimism

South Korea’s won extended its retreat from a 14-month high as concern the government will act to stem currency gains offset optimism the Chinese economy is set for recovery. Government bonds declined.

South Korea’s Deputy Finance Minister Choi Jong Ku said yesterday there is “herd behavior” in currency market and that the government will take action to curb excessive fluctuations. The won is the best performer among the 11 most-traded Asian currencies since end of June. A preliminary reading released yesterday signaled China’s manufacturing may expand in November for the first time in 13 months. The Kospi (KOSPI) index of shares rose for a second day.

“There’s risk appetite in the market with data from China, but caution against government intervention will restrict won gains,” said Kim Dong Young, a Seoul-based currency dealer at Industrial Bank of Korea. (024110)

The won closed at 1,086.14 per dollar in Seoul, compared with 1,085.73 yesterday, according to data compiled by Bloomberg. It touched 1,080.05 yesterday, the strongest level since Sept. 9, 2011. The currency appreciated 0.6 percent this week. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell 25 basis points, or 0.25 percentage point, to 5.65 percent.

The U.S. told Japan and South Korea it detected North Korean preparations to launch a long-range ballistic missiles, the Asahi newspaper reported, without saying where it got the information.

The yield on the government’s 2.75 percent bonds due September 2017 rose two basis points today to 2.92 percent, Korea Exchange Inc. prices show. The rate rose eight basis points this week, the biggest increase for a benchmark five-year note since August. The one-year interest-rate swap advanced one basis point to 2.80 percent today and climbed three basis points this week.

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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