Korean Won Rises as Fed Minutes Show Stimulus Support
South Korea’s won rose the most in more than two weeks as minutes from the Federal Reserve’s latest meeting showed some policy makers favored further monetary stimulus that may bolster demand for emerging-market assets.
Many participants at the Fed’s meeting said a new large- scale asset-purchase program “could provide additional support for the economic recovery,” according to the record released yesterday. The Kospi Index (KOSPI) gained for the first time in five days as exchange data showed overseas funds boosted holdings of local equities every day except one this month. Government bonds advanced.
“Some investors covered their short positions on the dollar yesterday expecting nothing much to come out from the Fed minutes, but today we’ll see the reverse,” said Jude Noh, a Seoul-based chief currency trader at Suhyup Bank. “With the end of the month nearing, we may see some exporters selling the greenback as well.” A short position is a bet an asset will decline in value.
The won appreciated 0.5 percent to 1,130.60 per dollar in Seoul, the biggest gain since Aug. 6, data compiled by Bloomberg show. It touched 1,129.35 earlier, the strongest level since Aug. 14. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, fell 23 basis points, or 0.23 percentage point, to 7.29 percent.
The yield on the government’s 3.25 percent bonds due June 2015 slid three basis points to 2.88 percent, the lowest in a week, Korea Exchange Inc. prices show. Three-year debt futures rose 0.11 to 105.90 and the one-year interest-rate swap fell two basis points to 2.92 percent.
“South Korea’s bond yields fell today reflecting yesterday’s decline in U.S. Treasury rates,” said Kim Kyung Hun, a Seoul-based bond trader at Hana Bank. “It’s too early to see if this will be a long-term trend as we have the European Central Bank and Fed’s meetings coming up next month where there may be big policy announcements.”
The 10-year sovereign debt yield in the U.S. fell 11 basis points to 1.69 percent yesterday.
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