Won Gains on Waning Fed Rate-Increase Bets, China Growth Data

South Korea’s won rose to a three-week high amid waning demand for the dollar as traders pushed back estimates for when the Federal Reserve will increase interest rates.

While futures are indicating the Fed is most likely to tighten policy in October next year, the odds have fallen to 46 percent from 77 percent at the start of the month. The U.S. central bank is due to end its stimulus as soon as this month, with the focus on next week’s meeting for further indications on its rate stance. China’s economy expanded 7.3 percent in the third quarter from a year earlier, more than the 7.2 percent median forecast in a Bloomberg survey, data showed today.

“Factors that led to dollar strength seem to be losing momentum, with expectations getting bigger for a more dovish Fed,” Jahng Won, a Seoul-based currency trader at Shinhan Bank, said before the Chinese data was released.

The won appreciated 0.5 percent to 1,054.76 per dollar at the close in Seoul, according to prices compiled by Bloomberg. It reached 1,053.05 earlier, the strongest level since Sept. 30. One-month implied volatility, a gauge of expected swings used to price options, dropped 40 basis points, or 0.40 percentage point, to 7.64 percent. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, has fallen 1.1 percent this month.

China’s factory output rose 8 percent in September from a year earlier, compared with the 7.5 percent median estimate of analysts in a Bloomberg survey and August’s 6.9 percent increase, an official report showed today.

Bonds Advance

“Dollar strength has subsided, and China data was also supportive of the won today,” said Park Dae Bong, a Seoul-based currency trader at Nonghyup Bank. “I don’t expect the won to strengthen beyond 1,050 easily as it’s an important resistance level and local stock market isn’t doing well.”

The Kospi index of shares closed down 0.8 percent today, taking its drop this month to 5.2 percent.

The yield on the June 2017 government bonds fell one basis point to 2.25 percent, while the rate on five-year debt declined two basis points to 2.43 percent, Korea Exchange prices show.

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