South Korean Won Reverses Loss on Exporter Demand; Bonds Advance

The won rose, reversing an earlier decline, on speculation South Korean exporters are accelerating conversion of overseas earnings toward the end of the month. Government bonds advanced.

The currency dropped as much as 0.5 percent earlier on speculation investors were favoring safer assets as the U.S. laid the groundwork for a military strike on Syria to punish the government for an alleged chemicals weapons attack. The U.S., France and Britain are preparing the legal case for action, moving forces into place and rounding up allies in the region.

The won closed 0.1 percent stronger at 1,115.35 per dollar after falling to a one-week low of 1,121.5 earlier, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 43 basis points, or 0.43 percentage point, to 8.51 percent.

“Investors are buying haven currencies as geopolitical risks rise from Syria,” Choi Sung Hyun, a currency trader at Woori Bank Co. in Seoul, wrote in a research note today. “The won’s fall may be limited if exporters add dollar supplies to cover month-end expenses.”

South Korea needs to act preemptively if capital inflows increase to excessive levels as a result of foreigners buying local bonds, a central bank board member said at the Aug. 8 monetary policy meeting, the minutes showed. Policymakers are watching for the impact of the Federal Reserve’s possible paring of its stimulus, Bank of Korea Governor Kim Choong Soo said yesterday. Foreign investors have bought more local notes than they sold every month since February, exchange data show.

Oil prices rose on speculation the tensions in Syria may disrupt Middle East oil supplies. Brent, the benchmark for more than half of the world’s oil, for October settlement advanced 1.4 percent to $115.94 a barrel on the London-based ICE Futures Europe exchange after settling yesterday at the highest level since Feb. 25.

The yield on South Korea’s 2.75 percent government securities due June 2016 fell two basis points to a two-week low of 2.92 percent, Korea Exchange Inc. prices show.

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