Korean Won Erases Loss on Speculation Exporters Convert Earnings

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The won erased an earlier loss on speculation exporters repatriated income to take advantage of the currency’s decline to near a two-month low.

The currency closed little changed at 1,130.59 per dollar in Seoul after falling as much as 0.4 percent to 1,135.58, according to data compiled by Bloomberg. That was near a two-month low of 1,137.75 touched on June 11.

More than $2 trillion has been shaved from world markets since Federal Reserve Chairman Ben S. Bernanke said on May 22 the monetary authority could cut its $85 billion monthly bond purchase program if there are signs of a sustained improvement in the jobs outlook. The Fed will end a two-day meeting today after U.S. data yesterday showed housing starts rose and living costs increased less than forecast in May. Bank of Korea Governor Kim Choong Soo said in Seoul today nations must coordinate policy to tackle global liquidity issues.

“Exporters repatriated income from overseas to take advantage of the strong dollar versus the won,” said Jeon Seung Ji, an analyst at Samsung Futures Inc. in Seoul. “The dollar stayed strong as investors are waiting for what Bernanke can say about the stimulus exit strategy.”

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 10 basis points, or 0.1 percentage point, to 10.68 percent.

Stabilizing Flows

A disorderly U.S. exit from the bond purchase program, known as quantitative easing, could burden South Korean financial institutions as government bond yields will rise, Financial Supervisory Service Governor Choi Soo Hyun said in a statement today. Stabilizing foreign currency flows is “increasingly important,” he added.

Overseas investors sold more South Korean stocks than they bought for the ninth day, the longest streak in two months, adding to $3.29 billion of net sales this month through yesterday, according to exchange data. Credit Agricole SA analysts including Hong Kong-based Mitul Kotecha today cut their forecast for the won to 1,140 versus the dollar by the end of September from 1,105 earlier.

Investors pulled a record $14.4 billion from global debt funds in the week to June 12, Citigroup Inc. reported June 14, citing EPFR data.

The yield on the 2.75 percent sovereign bonds due March 2018 was steady at 2.98 percent, prices from Korea Exchange Inc. show.

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