South Korea’s won completed its biggest weekly gain in two months on bets global investors will favor the nation’s assets as the Federal Reserve expands asset purchases that boost the supply of dollars. Bonds fell.
The Fed said this week it will buy $45 billion a month of Treasury securities starting in January, in addition to $40 billion a month of existing mortgage-debt purchases. Gains were limited after Vice Finance Minister Shin Je Yoon said Dec. 11 the government is concerned about herd behavior in won trading, and moves in “one direction” will be the most important factor in making a decision on whether to tighten the management of capital flows.
“Asian currencies are strengthening as the region is likely to receive more foreign funds after the Fed’s move,” said Lee Jin Ill, a Seoul-based currency dealer at Hana Bank. “What’s on the mind of traders in Korea is that the government may roll out more restrictive measures to slow the pace of the won’s gain.”
The won climbed 0.6 percent this week to 1,074.68 per dollar in Seoul, the most since the week ended Oct. 19, according to data compiled by Bloomberg. The currency fell 0.15 percent today. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell five basis points, or 0.05 percentage point, to 4.75 percent this week and was little changed today.
South Korean authorities announced last month a tightening of restrictions on the amount of currency forward positions banks are allowed to hold as won gains threaten exports. From Jan. 1, transactions at branches of overseas lenders will be capped at 150 percent of equity, compared with 200 percent currently, according to a statement on Nov. 27 from the Finance Ministry, Bank of Korea and the Financial Services Commission. The ceiling for domestic banks will be cut to 30 percent from 40 percent.
The yield on the government’s 2.75 percent bonds due September 2017 rose seven basis points, or 0.07 percentage point this week, to 3.0 percent, Korea Exchange Inc. prices show. The one-year interest-rate swap increased six basis points from Dec. 7 to 2.81 percent.
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