Won Gains Most Since 2010 as Fed Odds Revive Biggest Asia Losers

  • Bonds and stocks rise before Bank of Korea meeting on Thursday
  • BOK seen holding policy; speculation lingers for July rate cut

Asia’s biggest currency losers are looking like winners this week. The reduction in bets on Federal Reserve interest-rate increases helped drive South Korea’s won -- the worst performer in the region over April and May after Malaysia’s ringgit -- toward its steepest advance since 2010.

The won’s 1.8 percent surge on Tuesday as South Korean markets opened after a holiday outpaced even the the 1.2 percent surge for the ringgit on Monday. The two currencies have still weakened at least 1.6 percent since March 31 as South Korea’s economy slows and Malaysia grapples with political scandals and the default by a state investment fund.

Overseas investors were net buyers of South Korean shares Tuesday, sending the benchmark gauge to its highest close in almost six weeks, as receding bets for U.S. rate increases eased concern about capital outflows. That also gives the Bank of Korea more room to cut borrowing costs amid a 17-month slide in exports, even as all but one of 18 economists in a Bloomberg survey see no change from the record-low 1.5 percent at a meeting Thursday.

“The market has now ruled out the Fed’s June rate hike, and there are views that even a July increase may be difficult,” said Ha Keon Hyeong, an economist at Shinhan Investment Corp. in Seoul. “This has dealt a blow to the dollar.”

Rate Speculation

The won rose 1.8 percent to 1,162.65 per dollar as of the 3 p.m. close in Seoul, the steepest gain since June 2010, prices from local banks compiled by Bloomberg show. It touched 1,161.38, the strongest level since May 6. The Kospi index of shares climbed 1.3 percent and three-year government bond yield fell two basis points to an unprecedented closing level of 1.41 percent.

Minutes from the Bank of Korea’s May meeting, when policy makers held rates, said one of the seven board members called for a cut in the “near term.” Swaps traders see the cash rate at 1.31 percent in three months, indicating a July reduction is possible as the country seeks to restructure its shipping industries. 

The won will struggle to climb past 1,150 because of the speculation that the Bank of Korea will ease policy in coming months, said Jeon Seung Ji, a futures analyst at Samsung Futures Inc. in Seoul.

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