South Korea’s won retreated from a 14-month high and government bonds advanced as investor focus turned from U.S. President Barack Obama’s re-election to whether he can push through tax increases and avert spending cuts.
Obama faces the so-called fiscal cliff of more than $600 billion in expiring tax cuts and automatic spending reductions scheduled to take effect in 2013, while seeking to quicken the pace of the recovery in the world’s largest economy. The Kospi (KOSPI) index of shares fell 1.2 percent after the Dow Jones Industrial Average plunged the most in a year yesterday. The Bank of Korea will hold its benchmark interest rate at 2.75 percent at tomorrow’s policy meeting, after two cuts this year, according to all 16 economists surveyed by Bloomberg News.
“Investors who took short bets on the dollar recently may cover their positions as concern over the fiscal cliff looms,” said Han Sung Min, a Seoul-based currency trader for Busan Bank. “Still, with monetary easing expected to continue with the Obama administration, the won’s losses will be limited,” he said, referring to Republican challenger Mitt Romney’s comments during the campaign that he wouldn’t reappoint Federal Reserve Chairman Ben S. Bernanke to a third term in 2014. A short position is a bet an asset will decline in value.
The won weakened 0.4 percent to 1,089.65 per dollar at the close in Seoul, according to data compiled by Bloomberg. It touched 1,085.40 yesterday, the strongest level since Sept. 9, 2011. One-month implied volatility, a measure of exchange-rate swings used to price options, rose 10 basis points, or 0.10 percentage point, to 5.38 percent.
South Korea’s currency market opened at 10 a.m. today, an hour later than usual, to help reduce traffic for the national college entrance examinations. It closed at the usual time of 3 p.m. in Seoul.
The yield on the government’s 3.25 percent bonds due June 2015 declined two basis points to 2.76 percent, the lowest in a month, Korea Exchange Inc. prices show. The one-year interest- rate swap slid two basis points to 2.73 percent.
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