Bloomberg News

Won Gains, Bonds Decline on U.S. Budget Deal Optimism

November 29, 2012

South Korea’s won gained as comments by a U.S. lawmaker and President Barack Obama heightened speculation the world’s largest economy will avoid the so-called fiscal cliff. Government bonds were little changed.

House Speaker John Boehner said he is optimistic lawmakers can “avert this crisis sooner rather than later,” referring to the $607 billion combination of tax increases and spending cuts due to take effect in January. Obama said more Republicans are agreeing on a “balanced approach” to cut the deficit, and a deal could be reached before Christmas. Government reports due in the next two days may show South Korea’s industrial production increased the most in four months in October, while exports rose this month at the fastest pace since February.

“Obama’s comments brightened the outlook for a solution to the fiscal cliff issue,” said Choi Sung Hyun, a Seoul-based currency trader at Woori Bank. The won’s gains weren’t significant as investors remained cautious due to potential government intervention, he said.

The won rose 0.2 percent to 1,084.13 per dollar at the close in Seoul, after weakening 0.2 percent yesterday, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange rates used to price options, declined eight basis points, or 0.08 percentage point, to 5.25 percent. The Kospi (KOSPI) index of shares rose 1.2 percent.

Tighter Limits

On Nov. 27, South Korea tightened limits on the amount of currency forward positions banks are allowed to hold in an effort to curb gains in the won, Asia’s best performer since June 30. The U.S. Treasury Department said it will “continue to press” South Korea to limit foreign-exchange interventions to “the exceptional circumstances of disorderly market conditions,” according to a statement accompanying its semi- annual currency report to Congress this week.

Finance Minister Bahk Jae Wan said last month the government performs “smoothing operations” in the event of volatile currency fluctuations.

South Korean manufacturers’ confidence fell to 67, the lowest level in more than three years, central bank figures showed today.

The yield on the government’s 2.75 percent notes due September 2017 was steady at 2.90 percent in Seoul, Korea Exchange Inc. prices show. The one-year interest-rate swap slipped one basis point to 2.83 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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