Won gains as inflation slows some

Korea’s won had its biggest weekly gain since February after the nation’s current-account surplus widened and on speculation that exporters converted overseas earnings. Government bonds advanced as inflation eased.

The excess in the broadest measure of trade increased to $4.98 billion in March from $2.71 billion in February, the Bank of Korea said April 29. Exports exceeded imports for a 15th straight month in April, the government reported May 1. The Federal Reserve said this week it would maintain its $85 billion a month of debt buying, supporting emerging-market assets.

The won advanced 1.3 percent this week and 0.4 percent yesterday to 1,097.20 per dollar in Seoul, the strongest level since March 13. It was the fourth weekly gain in a row and the biggest since the period ended Feb. 15.

“The surpluses increased expectations for an oversupply of dollars, while exporters repatriated their overseas income, supporting the won,” said Hong Seok-chan, an analyst at Daishin Economic Research Institute in Seoul. “Investors are cautious, as they worry the authorities may try to stem the won’s gain.”

One-month implied volatility in the won, a measure of expected moves in the exchange rate used to price options, dropped 26 basis points this week and 23 basis points yesterday to 7.01 percent. Consumer prices rose a less-than-forecast 1.2 percent in April from a year earlier, the least since August, official data showed May 1. Three of seven central bank board members called for an interest-rate cut last month, the minutes of a central bank meeting released on April 30 showed. The next policy review is on May 9.

The Bank of Korea has kept the benchmark seven-day repurchase rate at 2.75 percent since October, resisting pressure from the government for a reduction even as a weaker Japanese yen threatens to hurt Korean exporters. All five analysts surveyed by Bloomberg forecast the rate will be left unchanged next week.

The yield on the 2.75 percent government notes due March 2018 fell six basis points, or 0.06 percentage point, this week to 2.52 percent, according to prices from Korea Exchange Inc. The yield closed at 2.5 percent yesterday, the lowest level for a benchmark five-year security in data compiled by Bloomberg going back to August 2000. The rate rose two basis points yesterday.

Bloomberg