Won Jumps Most in Four Years as Dollar Sinks on Fed Rate Outlook

  • Kospi stock index snaps 2-day loss as risk-sentiment improves
  • Samsung Futures sees unwinding of dollar-buying positions

South Korea’s won jumped the most Since November 2011 after the dollar slumped on speculation that disappointing U.S. data will prompt the Federal Reserve to delay raising interest rates.

A gauge of the dollar’s strength against 10 major peers fell the most since March after a report on Wednesday showed U.S. service industries grew in January at the slowest pace since April. Samsung Futures Inc. said that will likely trigger a massive unwinding of bets that the greenback would advance against the won. The Kospi index of shares snapped a two-day decline to rise 1.4 percent, tracking an overnight rally in U.S. equities.

The won strengthened as much as 1.6 percent to 1,199.89 a dollar before closing 1.4 percent higher at 1,202.06, data compiled by Bloomberg show. It has weakened 2.5 percent this year in Asia’s worst performance. One-month implied volatility in the won, a measure of exchange-rate swings used to price options, fell 19 basis points to 11.25 percent, following Wednesday’s 86 basis-point jump. Local markets are shut Feb. 8-10.

"Uncertainties about the policy outlooks of major central banks is boosting swings in the won,” said Jeon Seung Ji, a currency analyst at Samsung Futures in Seoul, who expects the won to remain weak and reach 1,210 by the end of first quarter. “We have to watch the moves in regional stock markets and foreign flows. Korean exporters may sell dollars before next week’s holidays, boosting the won."

Futures contracts indicate 49 percent chance the Fed will raise rates at or before its Dec. 14 meeting, down from a 93 percent probability assigned at the end of last year. Financial conditions are “considerably tighter” than at the Fed’s last meeting, but it’s “too soon to draw any firm conclusions,” New York Fed President William Dudley said in an interview with Market News International.

It wouldn’t come as a surprise if the Bank of Korea cuts its policy rate by a quarter point to an unprecedented 1.25 percent at its Feb. 16 meeting, Nomura Holdings Inc.’s Hong Kong-based economist Kwon Young Sun said in a report Wednesday. Exports, consumption and construction investment could be weaker than previously thought and pose downside risks to the Japanese brokerage’s 2.5 percent growth forecast for 2016, he wrote.

Three-year sovereign bonds advanced, with the yield falling one basis point to a record 1.49 percent, Korea Exchange prices show. The 10-year bond yield was steady at an unprecedented 1.87 percent.

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