Won Strengthens After Hyun Says Korean Surplus to Boost Currency

South Korea’s won rose to the strongest level in almost three weeks after Finance Minister Hyun Oh Seok said the current-account surplus, forecast to reach a record this year, will support the currency. Bonds were steady.

The excess in the broadest measure of trade will be larger than last year’s and put upward pressure on the won, Hyun said in an interview yesterday. The surplus for July was $6.8 billion, compared with $7.2 billion in June, the Bank of Korea reported today. The Kospi index of stocks rose by the most in two weeks as overseas funds added to their holdings, exchange data show.

The won advanced 0.5 percent to 1,109.8 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,108.66 earlier, the strongest level since Aug. 9. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 40 basis points, or 0.4 percentage point, to 8.16 percent.

“The won is holding well from external risks based on strong fundamentals and it has been undervalued, too,” Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul, wrote in a research note today. “We’re keeping an eye on oil price from tensions around Syria, it might hurt Korea’s trade surplus.”

Oil futures fell after surging to the highest level since 2011 yesterday on concern the Syrian conflict may threaten supplies from the Middle East. The U.S. and the U.K. said they are prepared to take military action after accusing Syria’s leaders of using chemical weapons in an attack on a Damascus suburb.

Domestic Spending

South Korea’s current account surplus will rise to $53 billion this year from last year’s $43 billion, according to a Bank of Korea forecast last month. The target can be achieved “without difficulty,” Bank of Korea Director General Jung Yung Taek said at a press briefing in Seoul today.

Korean exporters are less sensitive to the exchange rate than they used to be and resurgent domestic spending will ultimately boost imports and help reduce demand for the local currency, Finance Minister Hyun said yesterday. Overseas shipments (KOEXTOTY), which account for more than 45 percent of the nation’s gross domestic product, have increased in three of the past four months.

The country’s solid current-account surplus reflects its increasing safe-haven status, Wai Ho Leong and Bill Diviney, economists at Barclays Plc, wrote in a research note today.

The yield on South Korea’s 2.75 percent government securities due June 2016 was steady at 2.92 percent, Korea Exchange Inc. prices show.

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

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

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