South Korean Won Rises Second Day as Dollar Drops on Fed Outlook

  • `Market reacting to dollar's weakness,' Shinhan's Paik says
  • Won extends five-week gain as dollar falls versus major peers

South Korea’s won advanced for a second day against the dollar as speculation the U.S. Federal Reserve will delay raising interest rates pushed down the greenback.

The won extended a five-week rally and climbed in tandem with the yen, which appreciated to the strongest in 18 months on Tuesday. The won and yen tend to move together as exporters from Korea and Japan compete in international markets.

“The market is reacting to the dollar’s weakness," said Paik Seok Hyun, an economist at Shinhan Bank in Seoul. “We are seeing global currencies like the yen going stronger in this regard, and the won is trailing such moves.”

The won climbed 0.2 percent to 1,135.20 per dollar as of 11:08 a.m. in Seoul after gaining 0.2 percent on Monday. The currency surged 2.6 percent in the previous five weeks.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 of its major peers, dropped to the lowest in 12 months after a report on Monday showed U.S. manufacturing growth slowed in April. There is just a 12 percent chance the Fed will raise rates by its June meeting, down from 24 percent odds a month ago.

“The dollar’s weakness has progressed quite a bit, and there’s not much room for further declines," Shinhan Bank’s Paik said. The won will probably trade in a range between 1,134 to 1,139 per dollar on Tuesday, he said.

Korea’s 10-year bonds fell for a second day, with the yield climbing two basis points to 1.82 percent, according to data from Korea Exchange. The three-year yield was little changed at 1.47 percent.

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