Korean Won Advances Most in Three Months on U.S. Budget Progress

South Korea’s won gained by the most in more than three months after the U.S. Senate passed a budget bill that may avert some automatic tax increases and spending cuts if approved by the House. Government bonds declined.

The legislation, which is now being considered by the House, would make permanent the tax cuts for most households that expired at the end of last year, continue expanded unemployment benefits and delay automatic spending reductions for two months. South Korean inflation eased to a four-month low of 1.4 percent in December, official data showed on Dec. 31.

“Expectations that the U.S. fiscal cliff issue may be resolved are helping ease concerns in the currency market,” said Jeon Seung Ji, a foreign-exchange analyst at Samsung Futures Inc. in Seoul. “The expectations are weakening demand for the dollar.”

The won appreciated 0.6 percent from Dec. 28 to 1,064.65 per dollar as of 11:03 a.m. in Seoul, according to prices from Seoul Money Brokerage Services. That was biggest gain since Sept. 14. Local financial markets were closed on Dec. 31 and Jan. 1 before opening an hour later than usual today.

Exports dropped 5.5 percent in December from a year earlier, after a revised 3.8 percent increase in November, official data showed Jan. 1. That was the first decline in three months. Overseas sales will rebound 4.1 percent this year from 2012, resulting in a trade surplus of $25 billion, the government forecast yesterday.

The yield on South Korea’s 2.75 percent bonds due September 2017 gained two basis points, or 0.02 percentage point, to 2.99 percent, Korea Exchange prices show. The one-year interest-rate swap rose one basis point from Dec. 28 to 2.80 percent.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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

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