SEOUL, July 20 (AJP) - The South Korean won ended nearly unchanged Monday as a strong dollar and renewed U.S.-Iran tensions offset support from the Bank of Korea’s interest-rate increase last week.
Government bond yields rose as investors continued to price in the possibility of further monetary tightening.
The won closed the daytime trading session at 1,478.4 per dollar, up 0.1 won from the previous session.
The currency showed little reaction to the BOK’s decision Thursday to raise its benchmark interest rate by 25 basis points to 2.75 percent from 2.50 percent.
The central bank cited stronger export- and investment-led growth, above-target inflation and persistent financial stability risks, while Gov. Shin Hyun-song left the door open to further rate increases depending on incoming data.
The dollar index, which measures the greenback against a basket of six major currencies, remained above 100, limiting the won’s gains.
Renewed military tensions between the United States and Iran also sustained safe-haven demand for the dollar.
U.S. service members were killed in separate incidents involving Iranian missile and drone attacks in Jordan and Iraq, raising concerns that the conflict could spread across the region.
The developments kept the won’s recovery limited even after the BOK delivered its first rate increase since November 2022.
In the bond market, the yield on the three-year government bond rose 4.7 basis points to 3.895 percent, while the 10-year yield gained 3.9 basis points to 4.336 percent.
The larger rise in the three-year yield, which is more sensitive to the policy outlook, reflected expectations that the BOK could raise rates again.
The U.S. 10-year Treasury yield traded at around 4.57 percent Monday, roughly 23 basis points above the comparable Korean yield.
Korean government bonds therefore continued to offer no nominal yield premium over U.S. Treasuries, potentially limiting their appeal to yield-seeking investors.
The yield gap persisted despite foreign inflows linked to South Korea’s phased inclusion in the FTSE Russell World Government Bond Index.
The country’s inclusion began in April and is scheduled to proceed in monthly stages through November.
Foreign purchases linked to the index have so far failed to fully offset upward pressure on yields from expectations of further BOK tightening and renewed inflation risks stemming from the Middle East conflict.
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