Won Snaps 2-Day Rally as South Korea Pledges to Curb Volatility

Nov. 21 (Bloomberg) -- South Korea’s won fell for the first time in three days after Finance Minister Bahk Jae Wan said the government will act to curb volatility if needed. Sovereign bonds were little changed.

The government is closely monitoring the currency market, Bahk said in Seoul today. The yen weakened against the dollar for a sixth day as data showed Japan’s exports contracted for a fifth month. Federal Reserve Chairman Ben S. Bernanke said yesterday failure to avoid the so-called fiscal cliff would pose a “substantial threat” to economic recovery. The U.S. faces $607 billion of automatic spending cuts and tax increases scheduled to take effect in 2013.

The won fell 0.1 percent to 1,083.35 per dollar at the close in Seoul, data compiled by Bloomberg show. It touched 1,080.95 yesterday, the strongest level since Sept. 9, 2011. One-month implied volatility, a measure of exchange-rate swings used to price options, slid three basis points, or 0.03 percentage point, to 5.73 percent.

“There is caution against government intervention as Bahk’s comments sounded as if the authorities are trying to prevent the won from strengthening beyond the 1,080 per dollar level,” said Han Sung Min, a Seoul-based currency trader for Busan Bank. “Still, the weakening yen is triggering trades of selling the yen and buying the won, which is supporting the Korean currency.”

The yield on the government’s 2.75 percent bonds due September 2017 was steady at 2.87 percent, Korea Exchange Inc. prices show. The one-year interest-rate swap slipped one basis point to 2.77 percent.

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net