South Korea on Thursday stepped up moves to control rapid inflows of mostly speculative money that threaten to fuel inflation, telling banks it could reduce their currency derivative holdings and buying about $2 billion to slow its surging currency.
But the moves failed to stop investors from chasing riskier but higher-yielding assets as foreigners made their biggest daily net purchases of South Korean shares in nine months, lifting the won to a 32-month high. Analysts said a possible reduction in ceilings on derivatives deals at banks has largely been expected at some point and they predicted that the dollar's broad weakness as well as the robust economic prospects would keep the won strengthening.
Thursday's signal on derivatives "is in line with already outstanding policy guidance that is aimed at slowing won gains, rather than halting them," said Sacha Tihanyi, a senior currency strategist at Scotia Capital in Hong Kong. "As such, I'd still be bullish on the won at least until the end of the month. I don't think that this will stop (on its own) the won's ability to strengthen."
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