Won Jumps Most in Two Weeks as Selloff Before Fed Seen Excessive

  • Nonghyup Bank says traders paring bets that won will weaken
  • Government lowers 2016 growth forecast to 3.1 percent

South Korea’s won rose the most in almost two weeks to lead gains in Asia as traders judged its recent declines in the run-up to this week’s Federal Reserve meeting to be excessive.

The won advanced 0.6 percent, the most since Dec. 4, to close at 1,176.23 a dollar in Seoul, data compiled by Bloomberg show. The currency weakened to 1,189.78 on Monday, the lowest since Sept. 30, and has declined 1.6 percent this month, the most in Asia along with Indonesia’s rupiah. The dollar’s 14-day relative strength index versus the won was at 65.5 on Monday, near the 70 level that signals the greenback may be poised for a reversal.

"The won’s recent drop was steeper than other regional currencies, and now we see selling positions being pared back," said Park Dae Bong, a senior currency trader at Nonghyup Bank in Seoul. "South Korean exporters added to the won’s rise as they think the dollar won’t rise much further before the Fed’s decision."

The possibility of rapid outflows if the Fed raises interest rates on Wednesday is limited, Financial Services Commission Director General Kim Yong Beom said after regulators met in Seoul to discuss the impact of the expected U.S. policy decision. The Bank of Korea will meet before markets open Thursday and take stabilization measures if needed, according to a statement on Monday.

Foreigners sold more South Korean stocks than they bought for a 11th day, and have pulled $3.8 billion this quarter, on speculation higher U.S. rates will erode the allure of emerging-market assets. Futures contracts indicate a 78 percent probability that the Fed will raise rates from near zero.

Growth Forecast

The Finance Ministry lowered its growth forecast for 2016 to 3.1 percent from 3.3 percent on Wednesday, while revising its inflation estimate to 1.5 percent from 1.3 percent. The BOK reduced its consumer-price gains target to 2 percent, from 2.5 percent to 3.5 percent.

The government will utilize “all capacity” to achieve 3 percent real growth and 5 percent nominal growth next year, Finance Minister Choi Kyung Hwan said at a press briefing in Seoul on Wednesday. Asia’s fourth-largest economy will expand 2.5 percent in 2015 and 2.9 percent next year, according to economists surveyed by Bloomberg.

Government bonds fell, pushing the three-year yield up one basis point to 1.75 percent, Korea Exchange prices show. The 10-year yield was little changed at 2.22 percent.

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