Korea’s Won Advances as Easing Ukraine Tension Supports Risk

South Korea’s won rose to the highest level this month as optimism that tension between Russia and Ukraine is abating supported demand for riskier assets.

The Kospi (KOSPI) index advanced as overseas investors bought more local equities than they sold for the first time in four days, exchange data show. President Vladimir Putin urged Ukraine to halt fighting in the nation’s east, while the Red Cross said it is working on sending aid to rebel-held areas. The Bank of Korea will probably cut interest rates for the first time since May 2013 at its Aug. 14 meeting, according to 14 of 16 economists surveyed by Bloomberg. Two expect no change.

“Market sentiment has shifted to risk-on as geopolitical risks are showing signs of easing, as can be seen in the Kospi gains,” said Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc. “Exporters selling the greenback and investors unwinding long dollar positions also contributed to won gains.” A long position is a bet an asset will rise in value.

The won strengthened 0.4 percent to 1,026.60 per dollar at the close in Seoul, according to data compiled by Bloomberg. The currency touched 1,026.05 earlier, the strongest level since July 31. One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, fell nine basis points to 6.85 percent.

The yield on the 2.75 percent government bonds due June 2017 rose one basis point to 2.52 percent, Korea Exchange Inc. prices show. The yield on the 3.5 percent securities maturing in March 2024 increased two basis points, or 0.02 percentage point, to 3.06 percent.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net Robin Ganguly, Andrew Janes

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