Won Rises to Nine-Month High on Fed Stimulus Bets; Bonds Climb

South Korea’s won rose to the strongest level since January as U.S. employers added fewer jobs than forecast, bolstering the case for the Federal Reserve to delay cutting its bond purchases. Government bonds gained.

South Korea should closely monitor and prepare for changes in external conditions, including any stimulus reduction by the Fed, Bank of Korea Governor Kim Choong Soo said in Seoul today. The government is watching fund inflows and currency moves to identify speculative activity and will prevent “herd behavior,” Finance Ministry Director Kim Seong Wook said Oct. 18. U.S. employers added 148,000 workers last month, trailing the 180,000 forecast in a Bloomberg survey of economists.

“The expectation that the Fed’s stimulus will continue may create appetite for riskier asset,” Son Eun Jeong, a Seoul-based currency analyst at Woori Futures Co., wrote in a research note today. “We’re paying attention to possibly more intense intervention by the authorities as the won heads toward the highest level this year.”

The currency advanced 0.4 percent to 1,056.35 per dollar as of 9:50 a.m. in Seoul, the strongest level since Jan. 18, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped eight basis points, or 0.08 percentage point, to 5.92 percent.

Global funds have pumped some $12.1 billion into local stocks since Aug. 22, the last day of net sales, exchange data show. The Bank of Korea will take steps, including liquidity injections and changes to capital flow rules, if needed to ensure market stability, it said in an Oct. 18 report to parliament. The Fed refrained in September from reducing its $85 billion of asset purchases, saying it wanted to see more evidence of an economic recovery.

The yield on South Korea’s 2.75 percent sovereign bonds due June 2016 declined four basis points to 2.8 percent, the lowest level since Sept. 23, according to Korea Exchange Inc. prices.

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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