Won Rises to 8-Month High as Foreigners Buy Shares; Bonds Fall

The won rose to an eight-month high, erasing an earlier loss, as foreign investors added to their holdings of South Korean stocks. Government bonds fell.

Overseas funds bought more local shares than they sold for the 20th day, adding to almost $6.3 billion of net purchases this month through yesterday, exchange data show. The won fell in the morning as the Finance Ministry’s director general, Choi Hee Nam, met exporters in Seoul to discuss possible “herd behavior” in the currency market after the Federal Reserve last week unexpectedly refrained from reducing its record stimulus that has buoyed global assets.

“The majority of dollar supplies came from foreign investors buying local shares,” said Han Sung Min, a currency trader at Busan Bank in Seoul. “There was speculation the authorities intervened to slow the pace of the won’s gain.”

The won advanced 0.2 percent to 1,072.32 per dollar in Seoul, after falling by as much as 0.2 percent to 1,076.52, according to data compiled by Bloomberg. The currency touched 1,072.31, the strongest level since Jan. 25. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 15 basis point, or 0.15 percentage point, to 6.91 percent.

Standard & Poor’s today affirmed South Korea’s long-term credit rating at A+, the fifth-highest investment grade, and stable outlook, citing the country’s “favorable” policy environment, “sound” fiscal position and net external creditor position.

U.S. Policy

New York Fed President William C. Dudley said yesterday the U.S. economy “still needs the support of a very accommodative monetary policy,” while his Atlanta counterpart Dennis Lockhart said policy should focus on creating a more dynamic economy after a recent cooling in growth.

“Fed presidents gave dovish comments on the stimulus exit strategy, and the won is forecast to rise to 1,070 versus the dollar until the next Fed meeting in October,” said Lee Dae Ho, a currency analyst at Hyundai Futures Co. in Seoul.

The yield on South Korea’s 2.75 percent bonds due June 2016 climbed three basis points to 2.83 percent, snapping a three-day decline, Korea Exchange Inc. prices show.

Before it's here, it's on the Bloomberg Terminal.