SEOUL: South Korea’s won weakened amid speculation demand for the safety of the greenback rose before the Federal Reserve and Bank of Japan meet this week.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 peers, advanced for a second day before the Federal Open Market Committee decides on whether to raise U.S. interest rates on Wednesday and the BOJ reviews policy on Friday. Foreign funds were net sellers of Korean shares for a second day on Wednesday, according to exchange data.
The won weakened 0.3 percent to 1,134.72 a dollar as of 10:14 a.m. in Seoul, data compiled by Bloomberg show, after rising 0.3 percent on Tuesday. It’s rallied 4.6 percent in October, set for the biggest monthly gain in four years.
“As we are coming close to the FOMC meeting, the market may just play safe to make sure it doesn’t have a long position in the won,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The market is a little bit concerned that the BOJ could announce indications of further easing,” which would cause further weakness in the yen, she said.
The won tends to follow moves in the yen as South Korean and Japanese companies compete against each other in international markets. The European Central Bank signaled last week that it might expand its stimulus program and China cut interest rates for a sixth time in less than a year on Friday.
South Korea will closely monitor the FOMC meeting and watch out for various scenarios, Bank of Korea Governor Lee Ju Yeol said before a meeting with economists in Seoul on Wednesday. It’s unclear whether the Fed will tighten policy in December or next year, he said. Futures contracts show a 4 percent chance of a rate increase this month and 32.8 percent odds by the end of 2015.
Ten-year government bonds gained for a fourth day, pushing the yield down two basis points to 2.04 percent in Seoul, Korea Exchange prices show. The three-year yield was little changed at 1.63 percent.
