South Korea’s won dropped to a four-week low on speculation investors will refrain from buying riskier assets before Federal Reserve Chairman Ben S. Bernanke speaks this week at the U.S. central bank’s annual meeting. Government bonds were little changed.
The won slid 0.1 percent to 1,136.75 per dollar at the close in Seoul, data compiled by Bloomberg show. It earlier touched 1,138.08, the weakest since July 30. The currency pared losses yesterday after Moody’s Investors Service raised South Korea’s debt rating one step to Aa3, the fourth-highest grade.
Six of seven board members opted to cut the benchmark interest rate last month, according to minutes of the Bank of Korea’s last policy meeting, released after local markets shut today. Bernanke’s speech on Aug. 31 in Jackson Hole, Wyoming may shed light on the possibility of further monetary easing in the world’s biggest economy. A third round of bond purchases that boost the supply of dollars may spur demand for higher-yielding assets outside of the U.S.
“There was little notable movement in the currency market today,” said Lee Jin Ill, a Seoul-based currency dealer for Hana Bank. “With the Jackson Hole event coming up, not many are willing to take big bets.”
One-month implied volatility for the won, a measure of exchange-rate swings used to price options, rose 25 basis points, or 0.25 percentage point, to 7.58 percent.
South Korea’s exports probably shrank 6.3 percent in August, contracting for a second month, according to the median estimate in a Bloomberg News survey before data due this week.
The Bank of Korea will probably cut the benchmark rate by 50 basis points to 2.5 percent by year-end to support the economy, helping bonds gain, Danny Suwanapruti, the Singapore-based senior rate strategist at Standard Chartered Plc, wrote in a note to clients today.
South Korea received bids from primary dealers today for its first 30-year government debt sale which takes place next month. The finance ministry will announce the yield premium of the securities over 10-year bonds tomorrow.
The yield on the government’s 3.5 percent bonds due March 2017 held at 2.91 percent, the lowest level in almost three weeks, Korea Exchange Inc. prices show. Twenty-year debt yields fell one basis point to 3.12 percent, after dropping to 3.09 percent earlier.
Three-year debt futures slid 0.02 to 106.11 and the one-year interest-rate swap was steady at 2.89 percent.
“Speculation that bids for the 30-year bond sale were strong supported 20-year notes,” said Lee Gil Won, a Seoul-based bond trader for Shinhan Bank.