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Korean Won Declines as Yellen Remarks Spur U.S. Rate-Rise Bets

South Korea’s won fell against a rising dollar as comments by Federal Reserve Chair Janet Yellen boosted bets the U.S. central bank will increase interest rates.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, touched the highest level since February as Yellen said Aug. 22 that rates could go up sooner than estimated if progress in labor markets “continues to be more rapid than anticipated.” Her remarks were less dovish than expected, Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc., wrote in a report today.

“Yellen’s comments are supporting the greenback,” said Lee Hyun Kyung, a Seoul-based currency trader at Busan Bank. “Still, I don’t expect losses in the won to be significant as exporters will be selling dollars near the end of the month.” He expects the won to trade between 1,015 and 1,025 against the U.S. currency this week.

The won weakened 0.5 percent to 1,022.60 per dollar as of 9:45 a.m. in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, climbed 10 basis points, or 0.1 percentage point, to 6.14 percent.

South Korea’s finance ministry will sell 20-year bonds today, with the auction results scheduled to be released at 11:30 a.m. local time. There is scope for the Bank of Korea to lower borrowing costs this year to 2 percent to help the economy, Lee Do Yoon, Seoul-based chief investment officer at Samsung Asset Management Co., said in an Aug. 21 interview.

Sovereign bonds advanced, with the yield on the 3.5 percent government notes due March 2024 dropping two basis points to 3.13 percent, Korea Exchange Inc. prices show.

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

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Robin Ganguly, Amit Prakash

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