Won Posts Biggest Weekly Gain in Five Months on Growth Outlook

South Korea’s won posted its biggest weekly gain in almost five months and government bonds rose after the central bank raised its growth forecast amid optimism U.S. policy makers will maintain monetary stimulus.

The Bank of Korea kept its benchmark interest rate unchanged at 2.5 percent yesterday and boosted its 2013 expansion projection to 2.8 percent from an April estimate of 2.6 percent. Federal Reserve Chairman Ben S. Bernanke said July 10 the U.S. will need stimulus “for the foreseeable future,” and minutes of the Federal Open Market Committee’s June meeting showed policy makers want to see more signs employment is picking up before slowing bond purchases that have spurred demand for emerging-market assets.

“Bernanke’s signal that the tapering may take place later than what the market expected was the main driver of the won’s rally this week,” said Hong Seok Chan, an analyst at Daishin Economic Research Institute in Seoul. “The BOK gave a more optimistic view of South Korea’s economic recovery, which will support the currency further.”

The won rose 1.6 percent this week to 1124.47 per dollar in Seoul, the biggest gain since the period ended Feb. 15, data compiled by Bloomberg show. It fell 0.2 percent today. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 193 basis points, or 1.93 percentage points, to 8.45 percent this week. It declined 52 basis points today.

Bond Yield

The yield on the 2.75 percent government notes due March 2018 fell 11 basis points to 3.13 percent this week and rose three basis points today, prices from Korea Exchange Inc. show.

Bernanke signaled last month that the Fed may start to phase out stimulus measures this year if the U.S. economy grows in line with its projections. Labor Department data yesterday showed that initial claims for jobless benefits in the U.S. unexpectedly increased last week to a two-month high.

The Bank of Korea left monetary policy unchanged for the second straight month after a surprise rate cut in May. That stimulus, together with an extra budget of 17.3 trillion won ($15.4 billion) has boosted the growth outlook, Governor Kim Choong Soo said yesterday.

The central bank forecasts South Korea will post a record current-account surplus of $53 billion this year, Director General Shin Woon told reporters in Seoul yesterday.

To contact the reporter on this story: Yewon Kang in Seoul at ykang51@bloomberg.net

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

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