Won Gains for Second Week as U.S, China Data Support Inflows

South Korea’s won gained for the second straight week as positive data from the world’s biggest economies supported the flow of funds to emerging markets.

Sovereign bonds rallied on bets incoming finance minister Choi Kyung Hwan will make pro-growth statements at his July 8 nomination hearing. U.S. companies added more jobs in June than estimated while China’s manufacturing grew at the fastest pace this year, according to official data released this week. South Korea’s trade surplus was $5.29 billion in June, the government reported July 1. Overseas investors bought $828 million more local equities than they sold this week, exchange data show.

The won rose 0.5 percent from June 27 to 1,008.88 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,008.37 today, the strongest level since July 2008. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, gained 13 basis points this week and fell 23 basis points today to 4.68 percent.

“Positive data from the U.S. boosted risk sentiment and South Korea’s trade surplus also supported the won,” said Son Eun Jeong, a Seoul-based currency analyst at Woori Futures Co. “I don’t see many factors to weaken the won at the moment, and the dollar-won exchange rate will move toward 1,000.”

South Korea’s foreign-exchange reserves rose to a record $366.55 billion in June, the central bank reported July 3. The authorities are concerned about herd behavior in the currency market and are monitoring transactions by companies and offshore investors, the Finance Ministry and Bank of Korea said in a July 2 joint text message.

Bonds, Rates

The Bank of Korea will probably hold its benchmark rate at 2.5 percent at a July 10 meeting, according to all nine economists surveyed by Bloomberg. The rate has been unchanged since a cut in May 2013,

The yield on the 3.125 percent sovereign bonds due March 2019 dropped eight basis points, or 0.08 percentage point, this week and rose one basis point today to 2.81 percent in Seoul, Korea Exchange prices show. The 10-year yield fell six basis points from June 27 to 3.12 percent, while the three-year rate declined nine basis points to 2.6 percent.

“Investors are awaiting signals on growth-promoting policies at next week’s finance minister nominee hearing and the central bank meeting,” said Yoon Yeo Sam, a Seoul-based fixed-income strategist at Daewoo Securities Co. “The current three-year yield level suggests the market expects a rate cut within the next few months.”

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