South Korea’s Won Surges as Investors Buy More Local Equities

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South Korea’s Won Surges as Investors Buy More Local EquitiesThe South Korea’s won surged to its highest level in five weeks after an interest rate reduction last week spurred demand by global funds for local equities.

The currency advanced 0.3 percent from August 14 to close at 1,017.80 per dollar at the close of trade in Seoul. Local financial markets were shut on August 15 for a national holiday.

The Bank of Korea cut interest rates for the first time since May 2013 in order to boost the economic. International investors purchased net Korean stocks on Monday, continuing with last week’s net buys of $701 million, which pushed the won up 1.4 percent.

“Market players are still willing to reduce some dollar positions after the Bank of Korea’s rate cut last week,” Ryoo Hyunjung, a Seoul-based chief foreign-exchange trader at Citigroup Inc. told Bloomberg News. “The won remains in foreign favor, which will likely put steady pressure on its appreciation.”

The Bank of Korea lowered its 7-day repurchase rate from 2.5 percent to 2.25 percent on August 14, in line with analysts’ expectations. The won’s one-month implied volatility, which measures the expected fluctuations in the exchange rate used to set prices to options, stood at 5.90 percent, from 5.82 percent on August 14.

The yield on 2.75 percent government bonds that mature in June 2017 surged 0.02 percentage point or two basis points, to 2.56 percent.

Meanwhile, the Thai baht surged to the highest level in three weeks after a report showed that the country’s economy unexpectedly surged in the second quarter, indicating that the junta appears to be reviving economic growth after the May coup.

Gross domestic product surged 0.4 percent from a year earlier after declining 0.5 percent in the first quarter, reported the National Economic & Social Development Board on Monday. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com