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Buy Won Forwards on Bets Currency Will Rise 3.7%, Barclays Says

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littlekracker




Bloomberg
Buy Won Forwards on Bets Currency Will Rise 3.7%, Barclays Says

August 27, 2010, 2:39 AM EDT

Aug. 27 (Bloomberg) -- Investors should buy South Korea’s won offshore forwards, betting the currency will gain 3.7 percent as trade inflows increase and the government allows appreciation to damp inflation, according to Barclays Plc.

The U.K.-based bank recommended selling the dollar against the won via one-month non-deliverable forwards, targeting a move to 1,155. It suggested placing an order to guard against losses in the trade at 1,226 in the spot market. The contracts traded at 1,197.95 per dollar as of 3:06 p.m. in Seoul, according to data compiled by Bloomberg, suggesting bets for a 0.1 percent decline from today’s spot rate of 1,196.76.

Asia’s fourth-largest economy had a current-account surplus of $5.88 billion in July, the most in 16 months, central bank data today showed. The Bank of Korea’s interest-rate increase last month may not be sufficient to fight inflation, Governor Kim Choong Soo said yesterday.

“The pressure for the won to appreciate on a fundamental basis is hard to ignore,” Prakriti Sofat, an economist at Barclays in Singapore, wrote in a note today. “The balance of payments is likely to remain well-supported by large trade surpluses and continued investments in Korean assets.”

The central bank last month raised its inflation forecast for 2010 to 2.8 percent from a prior estimate of 2.6 percent. The won has dropped 2.7 percent this year, the worst performance among Asia’s most-traded currencies.

“We also believe the government is relaxing its attitude” of keeping the won from rising as import-price pressures mount, Sofat wrote.

The central bank left its benchmark interest rate unchanged at 2.25 percent this month after raising it in July from a record-low 2 percent. The policy rate will climb to 2.5 percent by year-end, while the won will advance to 1,140 per dollar, according to economists’ predictions in separate Bloomberg surveys.

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