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Won Rises to Six-Year High as ‘Dovish’ BOK Comments Boost Bonds

South Korea’s won advanced beyond 1,010 to the dollar for the first time since 2008 as data signaling strength in the world’s two largest economies bolstered demand for emerging-market assets.

Government bonds rallied after minutes of the Bank of Korea’s June policy meeting indicated consumer-price gains may stay subdued. The U.S. Institute for Supply Management’s manufacturing index was 55.3 in June, near May’s five-month high, while China’s factory output expanded the most this year. South Korea is concerned about currency-market herd behavior and is monitoring transactions by companies and offshore investors, the Finance Ministry and central bank said in a text message.

The won gained 0.2 percent to 1,009.15 per dollar in Seoul, data compiled by Bloomberg show. It touched 1,009.06, the strongest level since July 31, 2008. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell two basis points, or 0.02 percentage point, to 4.2 percent.

“It seems some investors unwound their long positions on the dollar after the authorities’ verbal intervention didn’t lead to significant real action,” said Jude Noh, Seoul-based chief currency trader at Suhyup Bank. “Positive data from the U.S. was supportive of the won.” A long position is a bet an asset will rise in value.

South Korea’s consumer prices rose 1.7 percent in June from a year earlier, figures showed yesterday, less than the 1.9 percent estimated in a Bloomberg survey. Overseas investors bought more of South Korea’s equities than they sold for the fifth straight day, according to exchange data.

Yield Plunge

With the won’s appreciation and weak inflationary pressure, consumer-price gains may stay below 2.5 percent, the bottom end of the Bank of Korea’s target range, for the rest of the year, a board member said in minutes of a June policy meeting released yesterday.

The yield on the 2.75 percent sovereign bonds due June 2017 fell eight basis points to 2.59 percent, Korea Exchange prices show. That’s the lowest level for a benchmark three-year note since May 2013. The 10-year yield dropped six basis points to 3.11 percent.

“Investors noticed that BOK board members adopted a more dovish stance in yesterday’s minutes,” said Park Dongjin, a Seoul-based fixed-income analyst at Samsung Futures Inc. Some members may express the need for a rate cut at a July 10 meeting, although the result will be a hold, according to Park.

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