Won Set for Biggest Monthly Gain in Almost Two Years on Inflows

South Korea’s won gained, heading for the best month in almost two years, after foreign funds pumped money into the nation’s stocks. Government bonds climbed.

The won strengthened 3.4 percent in September to 1,073.65 per dollar in Seoul, the best performance since October 2011, according to data compiled by Bloomberg. The currency gained 0.2 this week and 0.1 percent today.

Overseas investors bought $6.8 billion more local equities than they sold this month, exchange data show. South Korea reported today a current-account surplus of $5.7 billion for August, compared with a revised $6.8 billion in July. The nation is likely to record a $53 billion excess this year “without much difficulty,” Bank of Korea Director General Jung Yung Taek said. The U.S. unexpectedly filed fewer jobless claims in the week through Sept. 21, official data showed yesterday.

“As the global recovery seems on track, we expect more foreign funds coming into the local market, which will support the won,” said Jude Noh, a currency trader at Suhyup Bank in Seoul. “Although the August current-account surplus figures didn’t meet expectations, which may have some downward pressure on the currency, the bigger current is for a strong won.”

Noh forecast the won will reach 1,050 versus the dollar this year. Credit Suisse Group AG raised its three-month estimate for the won this week to 1,060 from 1,075, citing the current-account surplus and capital inflows.

Recovery in the U.S. economy is continuing, the International Monetary Fund’s chief economist Olivier Blanchard said at a conference in Seoul today.

Intervention Expected

South Korea’s Vice Finance Minister Choo Kyung Ho said he’s concerned about “herd behavior” in the currency market, speaking to Bloomberg by phone after the markets closed today.

“The Bank of Korea is likely to continue intervening to manage the pace of won appreciation, but we expect it to be overwhelmed by the magnitude of inflows,” Credit Suisse strategists including Singapore-based Ray Farris wrote in a report on Sept. 25.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 90 basis points, or 0.9 percentage point, this month to 7.06 percent. The gauge fell 15 basis points today.

South Korea will issue 97.9 trillion won ($91 billion) of treasury bonds in 2014, Kim Jin Myung, director of the Finance Ministry’s treasury bureau, said yesterday, confirming a report by Yonhap News. The country will sell 88.4 trillion won of the debt this year, according to the report.

The yield on the 2.75 percent bonds due June 2016 declined four basis points this month to 2.84 percent. It fell one basis point today and was unchanged this week.

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