South Korea’s Won Tumbles against the Dollar on Higher Demand from Importers

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South Korea’s Won Tumbles against the Dollar on Higher Demand from ImportersSouth Korean won reversed its gains that saw it hit its highest level in three months as importers rushed to take advantage of the gain purchase dollars to settle overseas debts.

The won was 0.2 percent lower at 1,055.45 per dollar at the close of trade in Seoul. It rose to 1,050.89, its strongest level since January 2. The one-month implied volatility, which measures the expected fluctuations in the exchange rate that is used to value options, surged 13 basis points to 6.56 percent.

“Some investors are exiting their short positions on the dollar after the dollar-won rate failed to fall below the 1,050 level, and local importers are also buying the U.S. currency,” Yun Se Min, a currency dealer at Busan Bank in Seoul told Bloomberg. “There is also caution that the authorities may intervene.” A short position is a bet an asset will drop in value.

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The won had previously advanced against the dollar, which plunged against its counterparts after U.S. Labor Department reported that fewer jobs were created than forecasted.  This lowered speculation that the Federal Reserve will move in to raise borrowing costs soon.

The American labor market absorbed 192,000 new workers in March, which lagged the average estimate of 200,000 jobs in a Bloomberg poll of economists. This sent the Bloomberg Dollar Spot Index plunging by its biggest margin in four weeks last Friday.

The Bank of Korea Governor Lee Ju Yeol announced in March that though the bank will allow the market to dictate the exchange rates, it will move in to deal with “temporary, excessive or one-way bets”. This was in response to queries by lawmakers in a parliamentary briefing.

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