Bloomberg News

Korean Won Weakens, Bonds Gain as Stimulus Optimism Wanes

September 26, 2012

South Korea’s won weakened and government bonds advanced after Federal Reserve Bank of Philadelphia President Charles Plosser expressed doubts about the effects of the U.S. central bank’s stimulus measures.

Plosser said yesterday that the new bond-buying program announced by the Fed this month probably won’t boost growth or hiring and may jeopardize the monetary authority’s credibility. The Kospi index of shares fell for a second day and government debt rose. An official report due Sept. 28 will show South Korea’s industrial output declined for a third month in August, while exports, scheduled Oct. 1, are forecast to drop 6 percent this month, according to separate Bloomberg surveys.

“With shares falling, and skepticism toward the effects of another round of quantitative easing spreading, the won is facing downward pressure,” said Kim Dong Young, a Seoul-based currency dealer for the Industrial Bank of Korea. The won’s losses will be limited as exporters are likely to sell dollars ahead of a public holiday on Oct. 1, he said.

The currency weakened 0.1 percent to 1,121 per dollar at the close in Seoul, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, advanced five basis points, or 0.05 percentage point, to 6.41 percent.

The yield on the government’s 3.25 percent bonds due June 2015 fell one basis point to 2.79 percent in Seoul, Korea Exchange Inc. prices show. The one-year interest-rate swap was little changed at 2.88 percent.

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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