Korean Won Strengthens to One-Month High as Stock Outflows Halt

  • Foreigners boosted Korean share holdings for second day
  • Dollar Index weakens before Fed policy meeting ends Thursday

South Korea’s won rose to a one-month high after an exodus of foreign funds from the stock market halted amid speculation the Federal Reserve will refrain from raising interest rates on Thursday.

Foreign funds turned net buyers of Korean equities for a second day, after ending the longest run of outflows since 2008 through Tuesday. The Bloomberg Dollar Spot Index, which measures the greenback against 10 peers, was steady before the Fed’s decision, which is due at 2 p.m. in Washington. The odds of a rate increase have fallen to 32 percent from 38 percent at the end of August, based on futures data compiled by Bloomberg.

The won rose 0.9 percent to close at 1,165.95 a dollar in Seoul, data compiled by Bloomberg show. The currency earlier reached 1,164.65, the strongest level since Aug. 11.

"While expectations for a Fed interest-rate increase this month weakened, uncertainty is still big," said Park Dae Bong, a currency trader at Nonghyup Bank in Seoul. "Offshore investors led won-buying and if foreigners return to stocks as confidence in local assets improves, the won will have upward pressure."

The pace of the Fed’s rate increase is expected to be more gradual than in the past, and won’t be a big shock to South Korea’s economy, Bank of Korea Governor Lee Ju Yeol said at an annual parliamentary audit on Thursday.

Government bonds fell, pushing the three-year yield up two basis points to 1.69 percent, Korea Exchange prices show. The benchmark 10-year yield rose one basis point to 2.28 percent, having fallen below the rate on similar-maturity U.S. Treasuries this week for the first time since June.

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