Won Completes Third Weekly Gain as Fed Rate-Increase Bets Recede

  • South Korean stocks have first week of inflows this year
  • Bond rally pushes yields to record lows on BOK rate-cut bets

South Korea’s won completed its longest run of weekly gains since October as odds of an interest-rate increase by the Federal Reserve this year faded, supporting demand for emerging-market assets.

The currency advanced as local equities had their first week of net purchases by global funds this year, after a slowdown in U.S. service industries spurred speculation the Fed will delay tightening policy. A gauge of the dollar’s strength versus major peers was set for its biggest five-day drop since May 2009. Sovereign bonds rallied as a deepening slump in South Korean exports and monetary easing in Japan fueled bets the Bank of Korea will add to four rate cuts since August 2014.

The won rose 0.4 percent on Friday and 0.1 percent from Jan. 29 to close at 1,197.54 a dollar in Seoul, according to data compiled by Bloomberg. Foreigners bought $97.4 million more of local stocks than they sold this week. The currency has declined 2.1 percent this year, Asia’s worst performance after India’s rupee. Local markets are shut Feb. 8-10 for holidays.

"The won will continue to show large swings for a while, mainly due to external factors," said Lee Dae Ho, an exchange-rate analyst in Seoul at Hyundai Futures Corp., who predicts the currency will weaken to 1,215 versus the greenback by March-end. "The won’s gain amid waning Fed rate bets may be curbed by geopolitical risks on the Korean peninsula."

Futures contracts indicate a 46 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. North Korea said on Wednesday it will launch a long-range rocket between Feb. 8 and Feb. 25 to put a satellite in orbit, following its fourth nuclear test on Jan. 6. South Korea has deployed military assets to monitor the rocket, which will be shot down if enters its airspace, a Defense Ministry spokesman said Thursday.

The central bank will hold a meeting on Feb. 10 to review and prepare measures to stabilize markets if risks related to North Korea increase over the Lunar New Year holidays, the BOK said in an e-mailed statement on Friday.

The benchmark 10-year bond yield fell 10 basis points this week, the most since the period ended Dec. 18, to 1.88 percent, one basis point off a record low reached Wednesday, Korea Exchange prices show. The three-year yield declined six basis points from Jan. 29 and climbed two basis points Friday to 1.51 percent, after reaching an unprecedented 1.49 percent on Thursday.

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