South Korean Won’s Volatility Declines on Intervention Concern

Volatility in South Korea’s won dropped to the lowest in more than two months on concern the nation’s monetary authorities may curb the currency’s gains as it trades close to the strongest level this year.

While the Bank of Korea will let the market set exchange rates “in principle,” it will act against temporary, excessive or one-way bets, Governor Lee Ju Yeol told lawmakers last month. Overseas investors bought more of the nation’s equities than they sold for the 10th day, exchange data show.

“It’s difficult to bet on further declines in the dollar-won rate on concern the central bank may act, but there’s even less reason to buy the dollar,” said Han Sung Min, a Seoul-based currency dealer for Busan Bank.

One-month implied volatility for the won, a gauge of expected moves in the exchange rate used to price options, declined 21 basis points, or 0.21 percentage point, to 6.35 percent as of 3:40 p.m. in Seoul, according to data compiled by Bloomberg. That’s the lowest level since Jan. 22. The won rose 0.3 percent to 1,052.30 per dollar at the 3 p.m. close. It touched 1,050.89 yesterday, the strongest since Jan. 2.

The central bank will probably hold its benchmark rate at 2.5 percent when it meets on April 10, according to all 18 economists surveyed by Bloomberg News. Governor Lee said in his inauguration speech on April 1 that he feels a responsibility to boost the domestic economy.

Government bonds declined. The yield on the 3.125 percent notes due March 2019 rose one basis point to 3.17 percent, Korea Exchange data show.

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