- Emerging-market currencies rallying on fading Fed rate bets
- Korea cut consumption taxes on some products to spur growth
The won rose for a third week on speculation the Bank of Korea will refrain from cutting interest rates again this year after forecasting the domestic economy will continue to recover.
Asian currencies including the won are rallying this month as bets for U.S. monetary tightening in 2015 recede, with futures suggesting next year is now more likely. The BOK kept borrowing costs at a record-low 1.5 percent yesterday and acknowledged that external conditions are providing uncertainties to South Korea’s growth.
"The BOK’s unanimous decision to hold interest rates decreases the likeliness of further easing this year and fueled unwinding of bets against the won,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul, predicting the central bank will stay put at least for the rest of the year. “Short positions in emerging-market currencies are being unwound considerably from the beginning of October as expectations for a U.S. rate increase fade."
The won strengthened 2.6 percent this week from Oct. 8 to 1,129.37 a dollar at the close in Seoul, data compiled by Bloomberg show. The currency rose 0.1 percent on Friday and climbed to 1,123.73 earlier, the highest level since July. Its third week of gains is the longest stretch in more than five months. Local markets were shut on Oct. 9.
The Bank of Korea lowered its 2015 growth forecast to 2.7 percent from 2.8 percent, which is still more optimistic than the 2.4 percent median estimate in a Bloomberg survey. A two-week festive shopping campaign called Korea Black Friday that started Oct. 1 helped boost domestic demand, Finance Minister Choi Kyung Hwan said on Wednesday. The government has also cut consumption taxes on cars and large home appliances until year-end.
BOK Governor Lee Ju Yeol said Thursday that uncertainty is high over the timing of a Federal Reserve rate increase. Futures contracts show a 30 percent chance for tightening in December, compared with 43 percent at the start of the month.
South Korea’s 10-year government bonds rose this week, with the yield falling three basis points to 2.07 percent, Korea Exchange prices show. The three-year yield was little changed at 1.63 percent.