Korean Won Trades Near Seven-Week High as Dollar Shortage Eases

By Kim Kyoungwha

Dec. 22 (Bloomberg) -- South Korea’s won traded near a seven-week high on speculation dollar liquidity is improving after a seizure in credit markets helped drag the local currency to a decade-low last month.

The currency, Asia’s worst performer this year, rose in each of the last two weeks, on speculation that policy makers intervened to support the exchange rate. Bank of Korea Governor Lee Seong Tae said last week the central bank will provide dollars when needed to help local lenders operate normally.

“Banks have little zeal for trading for now as the authorities stayed in the market to manage year-end foreign exchange,” said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. “There’s a perception that the dollar funding crisis is over.”

The won traded at 1,288.30 per dollar as of 9:45 a.m. local time, compared with 1,290 at the end of last week, according to Seoul Money Brokerage Services Ltd. The one-year cross currency swap stood at 0.3 percent, having recovered from a record low of minus 0.7 percent on Dec. 4.

The rate, a gauge of the availability of dollar funding, averaged 3.3 percent this year before the collapse of Lehman Brothers Holdings Inc. in mid-September caused credit markets to freeze.

The volume of won trading in the foreign-exchange market has dropped to $2 to $3 billion a day in the past week from more than $10 billion previously this year, Lee said. He forecast the won may reach 1,250 before the end of the year.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.