Won Jumps Most Since 2011 as Fed Scales Back Rate-Rise Outlook

Updated on
  • Outflows from China to slow, aiding Korea economy: Macquarie
  • Korean 10-year bond yield declines most in five weeks

South Korea’s won jumped the most since 2011 to lead gains in Asia as a dovish Federal Reserve boosted demand for emerging-market assets.

A gauge of the greenback fell the most in six weeks after the U.S. central bank held its benchmark rate and said it was projecting just two 25-basis-point increases this year, down from four forecast in December. The Fed cited the potential impact from weaker global growth and financial-market turmoil in its statement. Asian share markets rallied, with the Kospi index heading for its highest close since December.

The won surged 1.7 percent to 1,173.76 a dollar as of 11:58 a.m. in Seoul, according to data compiled by Bloomberg. That extended its gain this month to 5.4 percent, the best performance in Asia, and pushed it close to positive territory for the year.

"The won has always been a high-beta currency to the dollar, so if the dollar weakens it’ll be most significantly reflected in the won," said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore. "The weak dollar will provide a benign environment for China. Capital flows out of China will be less negative, and Korea has the largest exposure to China."

Almost a third of South Korean exports go to China, making the nation its largest overseas market, data compiled by Bloomberg show. An estimated $1 trillion of funds left China last year, draining liquidity from an economy grappling with the slowest growth since 1990.

South Korea’s sovereign bonds advanced, pushing the 10-year yield down five basis points, the most since Feb. 11, to 1.87 percent, Korea Exchange prices show. The three-year yield dropped three basis points to 1.52 percent.