Korean Won Snaps Four-Day Drop on Stock Inflows, Exporter Demand

The won rose for the first time in a week as overseas investors boosted their holdings of South Korean stocks and exporters took advantage of recent weakness to repatriate income at a more favorable exchange rate. Government bonds advanced.

Foreign investors bought more Korean equities than they sold for an 11th day, the longest run of net purchases since January. The won was also supported today as optimism Europe will step up efforts to resolve a regional debt crisis cooled demand for dollars. The euro advanced for a second day before Luxembourg Prime Minister Jean-Claude Juncker visits Greece tomorrow to discuss the country’s request for an extension to its fiscal adjustment program.

The won strengthened 0.4 percent to 1,131.15 per dollar in Seoul, after retreating 0.5 percent in the last four days, according to data compiled by Bloomberg. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, fell 33 basis points, or 0.33 percentage point, to 7.04 percent.

“Exporters are settling their deals after recent dollar gains,” said Kim Dong Young, a currency dealer at state-run Industrial Bank of Korea in Seoul. “A gain in the euro is also adding support to the local currency but the market appears to be largely stuck in a range” between 1,131 and 1,138.

Short-term Debt

South Korea’s short-term overseas debt rose the most in more than a year in the second quarter as banks increased borrowing and foreign investors purchased Korean bonds amid Europe’s debt crisis, according to the central bank.

External debt maturing in one year or less gained $5.6 billion in the three months through June to $141.4 billion, the Bank of Korea said in a statement today. Long-term external debt rose to $277.2 billion.

The yield on South Korea’s 3.5 percent bonds due March 2017 declined three basis points to 3.02 percent, Korea Exchange Inc. prices show. Three-year debt futures rose 0.16 to 105.80 and the one-year interest-rate swap fell four basis points to 2.93 percent.

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