Korean won pares decline after jawbone

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The Korean won jumped sharply this morning after authorities warned on volatility and cautioned against “herd behaviour”.

The currency is still sitting 0.5 per cent weaker at Krw1,233.63 per dollar, but had been as much as 1 per cent weaker earlier in the session.

The Bank of Korea and finance ministry, in an official statement to Reuters said:

The Bank of Korea and the government feel that recent movements in the dollar-won exchange rate have been excessive and are concerned that herd behaviour in the market has been intensifying.

The won is trading at its weakest level since June 2010, and is the weakest Asian currency so far this year, down 4.8 per cent against the dollar.

Earlier this week, the Bank of Korea decided to keep interest rates on hold at a record low 1.5 per cent. Policymakers face a challenge as growth in its major trading partners, namely China, slows, but the central bank would be reluctant encourage households to take on more debt and is also sitting back to watch the effect of the government’s stimulus efforts last year.

South Korean authorities have form when it comes to intervention in the market, drawing the ire of US Treasury in the process. The Bank of Korea and Ministry of Strategy and Finance hold the line they only act to reduce volatility of currency movements, not to influence their direction.

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