South Korea’s Won, Bonds Rally After Fed Lowers Rate Forecast

South Korea’s won and government bonds rallied as the Federal Reserve’s signal that U.S. interest rates will rise at a slower pace than previously forecast boosted demand for emerging-market assets.

The Bank of Korea met Thursday to discuss the Fed’s statement Wednesday, in which the U.S. central bank dropped an assurance it will be “patient” in tightening policy and lowered projections for the benchmark rate and economic growth. Finance Minister Choi Kyung Hwan told reporters in Seoul that expectations for the Fed’s rate increase may be pushed back. Bond yields fell to record lows.

“Bets on the greenback’s gains declined sharply as expectations of early U.S. rate increases moderated,” said Hong Seok Chan, a Seoul-based currency analyst at Daishin Economy Research Institute.

The won advanced 1.1 percent to 1,117.24 a dollar as of the 3 p.m. close in Seoul, data compiled by Bloomberg show. The currency earlier surged as much as 1.7 percent, the most since November 2011, and pared its decline in 2015 to 2.4 percent. The Bloomberg Dollar Spot Index erased earlier losses and rose for the first time in four days.

“Some market participants saw the won’s gains in the morning to be excessive and seem to be talking of dollar appreciation again,” said Jahng Won, a Seoul-based currency trader at Shinhan Bank.

Bond Yields

The yield on the 2 percent notes due December 2017 fell three basis points, or 0.03 percentage point, to 1.84 percent, Korea Exchange prices show. The 10-year yield declined seven basis points to 2.20 percent. The levels are the lowest for benchmark three- and 10-year securities in data compiled by Bloomberg since 2000.

The BOK said in a statement today it will closely monitor possible increases in financial and currency-market volatility and take measures if needed. Finance Minister Choi said it’s important to focus on South Korea’s strengthening economic fundamentals to prepare for any volatility from changes in U.S. monetary policy.

The BOK cut its key interest rate to an all-time low on March 12 to counter slowing inflation and a weak economic recovery, and Governor Lee Ju Yeol said the same day he will closely watch the Fed’s policy decisions and global capital flows. South Korea joined more than 20 nations in loosening policy this year.

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