The South Korean won retreated from its highest level in nearly six years after the government signaled that it plans to minimize volatility fluctuations near the trading close.
Finance Ministry Director Seong Wook revealed to Bloomberg that the government is concerned and is looking into various measures to tame the swings, though it has no plans to monitor trading by financial institutions for now. The won has rallied over the past few weeks on bets that exporters offloaded dollars while foreign funds bought more South Korean assets such as equities.
“Officials have been talking about ways to reduce volatility at the currency market close for some time, which would help the government manage the exchange rate,” Jeon Seung Ji, a currency analyst at Samsung Futures in Seoul, said. “Still, I don’t think it’s something that can reverse the won appreciation trend.”
The won was down 0.1 percent at 1,017.22 per dollar by the close of business in Seoul. The currency had earlier rose to 1,015.25, the highest level since August 2008. The won’s one-month implied volatility, which measures the expected shifts in the exchange rate used to assign prices to options, declined 0.17 percentage point, or 17 basis points, to 5.13 percent.
Most economists expect the central bank to retain its main rate at 2.5 percent when it meets on June 12.
“Investors are expecting a less hawkish monetary policy meeting, as a strong won will hurt the economic recovery momentum,” noted Yoo Hyun Chul, a fixed-income trader at Shinhan Investment Corp. “The consensus is that there will be no benchmark rate increase for some time.”
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