Won Posts Worst Week Since August Amid Intervention Speculation

South Korea’s won completed its worst week since August amid speculation authorities intervened to control the currency’s recent gains. Government bonds rose.

The currency fell from a two-year high yesterday after officials warned they would act to counter any “herd behavior.” Finance Ministry official Kim Seong Wook declined to comment when asked about another sudden decline in the won today. Global funds also sold more South Korean shares than they bought today, snapping a record 40-day streak of net purchases, according to data compiled by Bloomberg.

The won weakened 0.1 percent this week, the most since the period ended Aug. 23, according to data compiled by Bloomberg. The currency declined 0.1 percent to 1,062.06 per dollar in Seoul today, following a 0.5 percent fall yesterday.

“Authorities may have stepped into the market today, although the intensity was not as strong as yesterday’s intervention,” Park Jung Hyun, a currency trader at Hana Bank in Seoul, said by phone. “Foreign investors started to sell stocks after a record streak of inflows, and the intervention risk may have contributed to that.”

The won has surged 7.5 percent against the dollar since the end of June, the biggest gain among Asian currencies. Overseas investors pumped some $12.8 billion into South Korean stocks since Aug. 22 through yesterday, according to data compiled by Bloomberg.

The won’s one-month implied volatility, a measure of expected moves in the exchange rate used to price options, gained three basis points, or 0.03 percentage point, to 5.96 percent today. The gauge fell eight basis points this week.

Excessive Rise

“The authorities finally stepped into the market yesterday,” Jeon Seung Ji, a currency analyst at Samsung Futures Inc., wrote in a research note today. Traders estimated the intervention size at as much as $2 billion, she wrote.

Ryoo Sang Dai, director general at the Bank of Korea’s international department, declined to comment yesterday on whether authorities had intervened or on the size of the suspected action. The authorities are closely watching the currency’s rise and will act to promote stability and to curb excessive herd behavior, Ryoo said by phone.

South Korea’s economy expanded 1.1 percent in the three months through September from the previous quarter, exceeding the median 0.8 percent estimate of 15 economists surveyed by Bloomberg News. A strong won hurts the nation’s exports, which account for about half of gross domestic product.

The yield on South Korea’s 2.75 percent sovereign bonds due June 2016 fell three basis points this week and one basis point today to 2.8 percent, according to Korea Exchange Inc. prices.

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