Won Retreats From 10-Week High as Fed Seen Raising Rates by June

  • China's central bank weakens yuan fixing by most since January
  • Korean currency has been overbought recently: ANZ's Cheung

South Korea’s won retreated from a 10-week high as speculation an improving U.S. economy will prompt the Federal Reserve to raise interest rates supported the greenback.

The won snapped a three-day gain after a gauge of dollar strength rose the most in two weeks and the People’s Bank of China weakened the yuan fixing by the most since Jan. 7. Most traders see the Fed staying on hold this week, while just over half predict an increase by June, futures contracts show. The won pared losses after the Bank of Japan refrained from boosting stimulus.

The won fell 0.1 percent to close at 1,187.6 a dollar, after dropping as much as 0.5 percent earlier, according to data compiled by Bloomberg. That pared its monthly gain to 4.1 percent, still the biggest advance in Asia.

"While we do not expect the Fed to make a move this week, they will likely stick to their expectations for a gradual pace of tightening," said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. There’s a chance of an increase in June, she said.

Citigroup Inc.’s Economic Surprise Index, which measures U.S. data relative to market expectations, rose for a fourth day on Monday to reach a four-month high. The PBOC weakened its fixing by 0.26 percent to 6.5079 a dollar.

The won has been overbought recently, although not to a large extent, Cheung said. Its 14-day relative strength index fell to 35 on Monday, approaching the 30 level that signals to some traders the dollar has been oversold against the Korean currency.

Ten-year sovereign bonds were little changed, with the yield at 1.92 percent, Korea Exchange prices show. The three-year yield increased one basis point to 1.55 percent.

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