Korean Won Has Best Week in Five Months on Yellen, China TradeJiyeun Lee
South Korea’s won had its biggest weekly gain in almost five months as Federal Reserve Chair Janet Yellen’s pledge to cut stimulus in “measured steps” bolstered demand for emerging-market assets.
The currency was also supported by trade data from China that showed last month’s growth in exports and imports exceeded all 42 estimates in a Bloomberg survey. South Korea counts China as its biggest overseas market and had a record $70.7 billion current-account surplus in 2013. The Bloomberg JP Morgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, was set for a second weekly gain.
“The won has come back strongly this month, aided by the more settled mood in emerging markets,” said Sean Callow, a Sydney-based currency strategist at Westpac Banking Corp. “A calmer global environment has dovetailed with the won’s strong fundamentals of a large current-account surplus.”
The won rose 1 percent in the past five days to close at 1,063.35 per dollar in Seoul, the biggest weekly advance since the period ended Sept. 20, according to data compiled by Bloomberg. It strengthened 0.3 percent today. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 66 basis points this week to 6.75 percent.
The Federal Reserve has reduced its purchases of Treasuries and mortgage debt to $65 billion a month, from $85 billion last year, and Yellen said on Feb. 11 that the recovery in the U.S. labor market is far from complete.
South Korea’s economic fundamentals are “distinguished” and the government will focus on boosting domestic demand, Finance Minister Hyun Oh Seok said today. The Bank of Korea held its benchmark rate at 2.5 percent yesterday.
The yield on the 3.25 percent government notes due September 2018 fell six basis points this week and one basis point today to 3.13 percent, according to Korea Exchange Inc. prices. That’s the lowest level since Nov. 4.