The won surged at the fastest pace since July 2013 after the yen rose, lowering fears that a weaker yen would hurt South Korea’s exports. It also benefited from speculation the declining oil prices would be good for the local economy.
The yen has rallied 1.1 percent versus the U.S. dollar over two trading days due to falling oil prices that have sent investors scampering for refuge in the Japanese currency. The won rose 1.2 percent to 1,086.44 per dollar at the close of trade in Seoul, reducing its loss this quarter to 2.9 percent. It had earlier advanced to 1,086.38 on Tuesday, its highest mark since Nov. 10.
“The dollar-won rate is seeing a relatively big correction as the recent won weakness was excessive considering the currency’s positive fundamentals,” Jeon Seung Ji, a currency analyst at Samsung Futures Inc in Seoul, told Bloomberg News. “We typically see high demand for dollars in winter, and the drop in oil prices will be supportive for the won.”
The won and the yen are closely monitored as corporations in South Korea and Japan massively compete in international markets, especially in electronics industry.
Economists at Bank of America Corp. estimated in a report dated Dec. 1 that a 10 percent drop in crude prices would boost South Korea’s economic growth by 45 basis points. Crude prices have tumbled approximately 45 percent in 2014 as OPEC countries attempted to retain market share in the midst of increasing U.S. oil and gas supplies.
South Korea’s bonds rose, as 10-year yield fell 0.03 percentage point, or three basis points, to 2.67 percent. The yield on the three-year note jumped one basis point to steady at 2.14 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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