Korean Won Near 17-Month High as Dollar Remains Weak; Bonds Rise

South Korea’s won traded near a 17-month high, reflecting dollar weakness after Treasury Secretary Timothy F. Geithner warned of the consequences of failure to raise the U.S. debt ceiling.

The Dollar Index, a gauge of the greenback’s strength, approached the lowest level in more than a week after Geithner said not increasing the limit by early March would impose “severe economic hardship.” South Korea’s government may curb exchange-rate volatility further and recent movements in the won may have been too fast, Finance Minister Bahk Jae Wan said at a conference yesterday in Hong Kong.

The won closed little changed at 1,056.55 per dollar in Seoul, compared with 1,056.13 yesterday, according to data compiled by Bloomberg. It touched 1,054.49 earlier, the highest level since August 2011, after rallying 8.3 percent in 2012, the best performance among the 11 most-traded Asian currencies.

“The won earlier erased yesterday’s decline as investors bet South Korean authorities haven’t yet taken action to stem the won’s rise,” said Yoo Hyen Jo, an analyst at Shinhan Investment Corp. in Seoul. “Still, further gains are likely to be limited as any volatile movement in the won could prompt authorities to act.”

Bank of Korea Governor Kim Choong Soo said yesterday the nation will take an “active” response on the won if needed. Measures to slow the won’s appreciation could include “smoothing operations,” Kim said, adding authorities should act to normalize the exchange rate. Global investors sold $92 million more South Korean stocks than they bought yesterday, exchange data show.

The yield on South Korea’s 2.75 percent bonds due September 2017 dropped four basis points, or 0.04 percentage point, to 2.84 percent, according to Korea Exchange prices.

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