Korean Won Rises to One-Week High as Growth Quickens; Bonds Gain

The won rose to the highest level in more than a week after South Korea’s gross domestic product increased the most in two years, beating forecasts. Government bonds gained, pushing the five-year yield to a two-week low.

Asia’s fourth-largest economy expanded 0.9 percent in the first quarter from the previous three months, when it grew 0.3 percent, the Bank of Korea said today. That exceeded the 0.7 percent median estimate of 15 economists in a Bloomberg News survey. The Kospi index advanced to a three-week high as investors bought more constituent shares, exchange data show.

The won climbed 0.5 percent to 1,112.14 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,111.24, the strongest level since April 17. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 35 basis points, or 0.35 percentage point, to 7.45 percent.

“Sentiment is bolstered by the better-than-expected GDP data, providing some impetus to the won,” said Hong Seok Chan, a Seoul-based currency analyst at Daishin Economic Research Institute. “Still, it seems to be hard for the won to break through the 1,110 level amid concern the government may step in to prevent rapid gains given the yen’s weakness.”

A slide in the yen has only started to affect the South Korean economy, central bank Governor Kim Choong Soo said yesterday, adding that policy makers are closely looking at the Japanese currency’s movement. The strong won and the weak yen are still concerns, according to Lee Won Hee, chief financial officer at Hyundai Motor Co. (005380), which today reported a 15 percent drop in net income for the first quarter.

The Japanese currency fell 13 percent against the dollar this year, while the won dropped 4.2 percent per dollar and climbed 10 percent against the yen, according to data compiled by Bloomberg.

The yield on the 2.75 percent government bonds due March 2018 fell six basis points to 2.62 percent, the lowest since April 10, according to prices from Korea Exchange Inc.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net; Kyoungwha Kim in Singapore at kkim19@bloomberg.net

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

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