- Risk of rate cut Friday limiting won's gain: Dongbu Securities
- Two-year bond yields signal lower rates being priced in
South Korea’s won rose for a second day after the dollar remained weaker against the majority of its main peers and economists forecast the Bank of Korea will hold interest rates at a record low on Friday.
The currency advanced 0.5 percent to 1,162.45 per dollar at the 3 p.m. close in Seoul, taking its two-day gain to 0.9 percent, according to prices from local banks compiled by Bloomberg. The won weakened beyond 1,170 this week for the first time since late March and reached 1,175.65 on Tuesday.
Global funds have added to their holdings of the nation’s government bonds this month amid receding odds of a U.S. rate increase. Fifteen of 18 economists surveyed by Bloomberg predict South Korean policy makers will keep the key rate at 1.5 percent on Friday, while three forecast a quarter-point cut. Three-year debt yields have fallen below the central bank’s benchmark, suggesting investors are pricing in lower rates going forward.
“Profit taking and dollar sales were spotted as the 1,170 level was seen as burdensome,” said Yuna Park, a currency analyst in Seoul at Dongbu Securities Co. South Korea’s “new board members are said to be dovish and central banks in nearby regions like Australia are easing,” she said. “We think there is a fair chance of a cut tomorrow.”
Overseas investors have bought a net $1.1 billion of South Korean debt this month following net purchases in April and March. Futures are showing just 4 percent odds of a U.S. rate increase by June and 16 percent by July. That compares with 16 and 27 percent a month ago. The Bloomberg Dollar Spot Index was steady after dropping 0.4 percent on Wednesday.
South Korea’s 10-year yield held at 1.77 percent, according to Korea Exchange data. The three-year yield was at 1.43 percent, two basis points above Monday’s all-time low.
“If a rate cut happens tomorrow, the won could fall back to 1,170 in the short term,” said Min Gyeong Won, an analyst at NH Futures Co. “Comments from the central bank governor will be followed as the market tries to gauge whether policy makers are leaning more toward an easing stance.”