South Korean Won Forwards Weaken After Park Elected; Bonds Gain
Won forwards fell for the first time in a week after the ruling party’s Park Geun Hye was elected South Korea’s first female president, damping speculation of a major shift in the nation’s exporter-friendly policies. Government bonds advanced.
Park defeated main opposition nominee Moon Jae In by 51.6 percent to 48 percent in yesterday’s election, according to the National Election Commission. Park has called for tighter regulation of family-owned conglomerates such as Samsung Group, but stopped short of Moon’s call for banning existing and new cross-shareholdings. U.S. shares fell yesterday on concern lawmakers are struggling to reach agreement on budget changes.
“The ruling New Frontier Party is more corporate friendly than the opposition, which means less tolerance for a stronger won,” said Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc. “There is caution against government intervention considering what we saw on Dec. 18, and also the U.S. budget deal is a continuous concern.”
One-month non-deliverable forwards on the won weakened 0.1 percent to 1,074.76 per dollar as of 10:04 a.m. in Seoul, according to data compiled by Bloomberg. The won traded at 1,072.78 per dollar from a close of 1,073.23 on Dec. 18, when it touched a 15-month high of 1,070.73. Local markets were closed yesterday for the election.
One-month implied volatility, a measure of expected moves in exchange rates used to price options, was little changed today at 4.75 percent. That is down from 13.55 percent at the start of this year. The won has strengthened 7.4 percent this year, the best performance among Asia’s 11 most-used currencies.
Park’s victory “means policy stability and continued opposition of the Bank of Korea towards faster won gains,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong, wrote in a research note today. “As opposition candidate Moon would have likely favoured a firmer currency, the unit should correct today.”
The yield on South Korea’s 2.75 percent bonds due September 2017 fell one basis point, or 0.01 percentage point, to 3.04 percent, Korea Exchange Inc. prices show. The one-year interest- rate swap slid one basis point to 2.81 percent.
Obama administration officials told leaders of business and financial services groups yesterday that negotiations on budget talks with House Speaker John Boehner have deteriorated in the last 24 hours, according to a person familiar with the meeting.
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