Won Falls Most in a Month on Intervention Concern; Bonds Steady

South Korea’s won fell the most in more than a month on concern authorities will intervene to slow gains after global demand for local shares boosted the currency to an eight-month high. Government bonds remained steady.

Short-term volatility in financial markets has increased and authorities will respond “flexibly” to instability if needed, Bank of Korea Governor Kim Choong Soo said in Seoul today. The won has gained 6 percent this quarter, Asia’s best performance, as global funds added almost $9.2 billion to their holdings of equities in the period, exchange data show.

The won dropped 0.5 percent to 1,077.23 per dollar in Seoul, the biggest decline since Aug. 22, according to data compiled by Bloomberg. The currency touched 1,072.31 yesterday, the strongest level since Jan. 25. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 49 basis points, or 0.49 percentage point, to 7.47 percent.

“Authorities seem determined to slow the pace of the won’s gains,” said Hong Seok Chan, a currency analyst at Daishin Economic Research Institute in Seoul.

The U.S. Federal Reserve’s tapering of its stimulus is a “matter of timing,” central bank Governor Kim said today. The Federal Open Market Committee said after its Sept. 17-18 meeting that it wants to see more evidence of an economic recovery in the U.S. before reducing its $85 billion of monthly bond purchases that have spurred flows to emerging markets.

Dollar Demand

“Offshore demand in haven currency, the dollar, was strong on external risks such as the U.S. budget talk deadlock,” said Choi Sung Hyun, a currency trader at Woori Bank in Seoul.

The U.S. Senate will hold a test vote today on legislation passed by the House of Representative to cover federal spending through Dec. 15 and to cut funds for President Barack Obama’s health-care law.

The yield on South Korea’s 2.75 percent notes due June 2016 remained unchanged at 2.83 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: James Regan at jregan19@bloomberg.net

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