Won Retreats From 6-Year High as Government Reviews Volatility

South Korea’s won fell from the strongest level in almost six years as the government said it is looking to reduce volatility swings near the close of trading.

The authorities are concerned and they are reviewing measures, Finance Ministry Director Kim Seong Wook told Bloomberg by phone, adding that the government has no immediate plans to inspect trading by banks. The won gained earlier as global funds increased their holdings of South Korean equities and on speculation exporters sold dollars.

The currency fell 0.1 percent to 1,017.22 per dollar at the close in Seoul, according to data compiled by Bloomberg. It earlier touched 1,015.25, the strongest level since August 2008. Overseas investors bought more local shares than they sold for the 19th straight day, exchange data show. The won rose to 1,016.41 at yesterday’s close, after trading at 1,017.73 five minutes earlier.

“Officials have been talking about ways to reduce volatility at the currency market close for some time, which would help the government manage the exchange rate,” said Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc. “Still, I don’t think it’s something that can reverse the won appreciation trend.”

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 17 basis points, or 0.17 percentage point, to 5.13 percent, according to data compiled by Bloomberg.

Bonds Gain

The Bank of Korea will take measures if volatility in the currency market increases, Ryoo Sang Dai, director-general at the monetary authority’s international finance bureau, told Bloomberg by phone on May 30. The central bank will probably hold its benchmark rate at 2.5 percent at its June 12 meeting, according to all 19 economists surveyed by Bloomberg News.

Government bonds gained, with the yield on the 3.5 percent notes due March 2024 falling four basis points to 3.35 percent, Korea Exchange prices show. The three-year yield declined two basis points to 2.83 percent.

“Investors are expecting a less hawkish monetary policy meeting, as a strong won will hurt the economic recovery momentum,” said Yoo Hyun Chul, a fixed-income trader at Shinhan Investment Corp. “The consensus is that there will be no benchmark rate increase for some time.”

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