The won had its biggest weekly gain since December 2011 on speculation South Korean authorities won’t act to curb its advance as the yen rebounded from near a three-year low before a Group of 20 nations meeting.
The currency rose to the highest level in three weeks today after the Bank of Korea held its benchmark interest rate at 2.75 percent for a fourth month yesterday. G-20 leaders gathering in Moscow from today will reaffirm a pledge to avoid competitive devaluation, according to a draft statement obtained by Bloomberg News, while Russia pushed for a stronger stance against exchange-rate manipulation. The yen rebounded after breaching 94 per dollar on Feb. 11 even as a report showed Japan’s economy shrank last quarter.
“We are unlikely to see any strong action from Korea or other Asian central banks before the G-20 meeting,” said Roy Teo, a currency strategist at ABN Amro Bank NV in Singapore. “The impact of yen weakness on Asian economies is likely to be relatively muted” because of the rise of China as the top market for Asian exports, he said.
The won rallied 1.6 percent to 1,078.20 per dollar in Seoul, according to data compiled by Bloomberg, the biggest weekly advance since the five days ended Dec. 2, 2011. It reached 1,076.60 earlier, the strongest level since Jan. 25.
One-month implied volatility for the won, a measure of expected moves in exchange rates used to price options, fell 100 basis points, or one percentage point, to 7 percent from a week ago, data compiled by Bloomberg show. It fell 30 basis points today.
Against its Japanese counterpart, the South Korean currency advanced for a third week to 11.64 per yen. It has appreciated 15 percent against the Japanese currency in the past three months and reached 11.575 on Feb. 12, the strongest level since October 2008. A stronger won erodes the competitiveness of exporters such as Hyundai Motor Co. and Samsung Electronics Co.
The Bank of Korea maintained its seven-day repurchase rate after official data showed the economy grew at an annual rate of 1.5 percent in the final quarter of 2012, trailing the median estimate of economists for a 1.8 percent gain. Governor Kim Choong Soo said the exchange-rate is an important consideration in interest-rate decisions, without being a determining factor.
The yield on South Korea’s 3.75 percent notes due June 2022 rose one basis point to 3.07 percent from a week ago, Korea Exchange Inc. prices show. The yield fell two basis points today. The government will auction 1.6 trillion won ($1.5 billion) of 10-year bonds on Feb. 18.