Won Volatility Falls as Korea Intervention Concern Damps Trading

Volatility in the won slid for a fourth day as concern that South Korea may act to curb the currency’s appreciation sapped trading.

South Korean authorities have succeeded in setting a ceiling for the won around the 1,022 per dollar level after a “fairly strong” effort to buy the greenback last week, Scotiabank said in a report yesterday. Gains in exports as well as inflows into the nation’s equities and debt have fueled the won’s 4.1 percent advance this quarter, the best performance among 31 major currencies tracked by Bloomberg.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 15 basis points, or 0.15 percentage point, to 5.73 percent as of 3:37 p.m. in Seoul, according to data compiled by Bloomberg. The won rose 0.1 percent to close at 1,023.20 per dollar in Seoul.

“We saw exporters selling the greenback near the 1,023.5 level, which shows there’s plenty of dollars to sell,” said Jahng Won, a Seoul-based currency trader for Shinhan Bank. “There wasn’t much trading and it seems the won will gradually strengthen until the month-end,” though appreciation beyond 1,020 will be difficult on intervention concerns, Jahng said.

Spot trading volume was $4 billion today, compared with the daily average of $7.7 billion in the past year, according to figures from the Korea Money Brokerage Corporation and Seoul Money Brokerage Services. Financial markets in the U.S. and the U.K. were shut yesterday for holidays.

Inflows, Exports

Global funds bought $4.3 billion more of local equities than they sold this quarter and added $52.2 million to their holdings of local bonds, exchange data show. South Korea’s exports probably gained for a fourth month in May, rising 2.9 percent from a year earlier, according to the median estimate of economists surveyed by Bloomberg before data due June 1.

Finance Minister Hyun Oh Seok said last week direct policy measures should be considered to ease exchange-rate fluctuations. The authorities appeared to defend the 1,020 per dollar level actively with verbal or direct intervention, Citigroup Inc. said in a May 23 report.

South Korea’s consumer confidence dropped to an eight-month low of 105 for May, central bank reported today.

The yield on the government’s 3.5 percent bonds due March 2024 was steady at 3.37 percent, Korea Exchange prices show. The five-year sovereign rate was little changed at 3.06 percent.

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