Bloomberg News

Korean Won Gains as U.S. Data Supports Fed Easing; Bonds Advance

April 01, 2013

The won rose the most in a week against the dollar as a manufacturing slowdown in the U.S. damped speculation the Federal Reserve will rein in monetary stimulus. South Korea’s government bonds advanced.

The Dollar Index dropped for a fourth day, the longest losing streak in two months, after data yesterday showed factory output in the world’s largest economy expanded in March at the slowest pace this year. The won weakened 2.6 percent in March, the biggest monthly drop since May 2012, as increased risk of conflict with North Korea and a worsening economic outlook prompted overseas investors to cut their holdings of Korean stocks by $1.9 billion.

The won was 0.3 percent stronger at 1,111.01 per dollar as of 10:42 a.m. in Seoul, according to data compiled by Bloomberg. One-month implied volatility in the currency, a measure of expected moves in the exchange rate used to price options, fell 30 basis points, or 0.30 percentage point, to 7.57 percent. Against the yen, the won dropped 0.5 percent to 11.94, trimming its gain for the past six months to 19 percent.

“The U.S. outlook looks weak, prompting investors to sell dollars,” said Hong Seok Chan, an analyst at Daishin Economic Research Institute in Seoul. “Investors will also watch the won’s gains against the yen as an excessive rise could prompt the authorities to take steps.”

South Korea will monitor the effects of foreign exchange movements on exporters at all times, the finance ministry said yesterday. The government offered 100 billion won ($90 million) in loans to small exporters hurt by the yen.

Nuclear North

North Korea said on March 30 that a “state of war” exists with the South and threatened to shut a jointly run industrial zone in its border city of Gaeseong. Kim Jong Un, the communist state’s leader, said March 31 nuclear weapons development is a priority as the country ratcheted up tensions by repeating threats to attack the U.S.

The yield on South Korea’s 2.75 percent bonds due March 2018 dropped one basis point to 2.56 percent, according to prices from Korea Exchange Inc. The five-year yield reached 2.51 percent on March 29, the lowest it has been in Bloomberg data going back to 2000, amid a worsening economic outlook.

The government lowered its 2013 growth forecast on march 28 to 2.3 percent from a December projection of 3 percent.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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


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