South Korea’s won slumped the most since February, after reversing earlier gains, amid speculation the authorities intervened.
The currency has strengthened 3.6 percent against the dollar this quarter, the second-best performance among 31 major currencies tracked by Bloomberg, and trade minister Yoon Sang Jick said today that appreciation was hurting the nation’s smaller exporters. Finance Minister Hyun Oh Seok said the government would help protect these companies against volatile swings in the exchange rate.
The won sank as much as 0.6 percent to 1,028.40 per dollar in Seoul, the weakest level since May 6, having been 0.1 percent stronger on the day four minutes before the level was reached. Bank of Korea Director General Ryoo Sang Dai declined to comment on whether there had been intervention. The currency closed at 1,027.80 in Seoul, down 0.6 percent from yesterday in the biggest decline since Feb. 20. It touched 1,020.97 on May 9, the strongest since August 2008.
“The authorities seemed to have been waiting for a good time to intervene, and they know that intervention has to be big to be effective,” said Jeon Seung Ji, a Seoul-based currency analyst for Samsung Futures Inc. “Today’s actions show the government is determined to prevent the won from strengthening beyond 1,000.”
Policy makers are watching out for possible herd behavior in the currency market as excessive volatility is not desirable, Vice Finance Minister Choo Kyung Ho said yesterday. The break-even exchange rate for manufacturers selling goods overseas is 1,045 won per dollar, according to a survey of 340 companies by the Korea International Trade Association cited in a government statement today.
South Korea’s sovereign bonds rose as signs that recoveries in the local and U.S. economies aren’t strong enough bolstered demand for the safest assets.
The unemployment rate in South Korea increased to 3.7 percent in April, official data showed today, more than the 3.4 percent median estimate in a Bloomberg survey. Prices of the nation’s imports and exports fell 2.5 percent from March, the central bank said today. U.S. retail sales rose 0.1 percent in April, according to a report yesterday, below the 0.4 percent gain forecast in a separate poll.
The yield on South Korea’s 3.125 percent bonds due March 2019 fell one basis point to 3.11 percent, according to Korea Exchange data. The yield on the 3.5 percent notes due March 2024 declined one basis point to 3.45 percent. Overseas investors sold more three- and 10-year debt futures than they bought today.
“U.S. retail sales trailed estimates quite a bit, and the higher local unemployment rate is also supporting bonds,” said Kong Dong Rak, a Seoul-based fixed-income strategist at Hanwha Investment & Securities Co. “I had expected bond gains to be bigger but it seems foreigners selling bond futures is limiting increases.”