Forex Blog: Currency Trading News & Analysis.

May 24th 2005

South Korea: to diversify or not

As I reported last week, a high ranking official in South Korea’s Central Bank announced the end of his organization’s routine intervention in currency markets. The official’s comments sent the dollar reeling, as investors feared a significant drop in future demand for US Treasury securities. The Central Bank made similar comments last month, only to retract them later in the week.

Once again, the Central Bank has erred: it will not stop buying US treasuries, in an effort designed to prevent the Won from appreciating too rapidly. Apparently, the official’s comments had been "distorted" by the Financial Times, which originally reported the development. To prove its intentions were genuine, South Korea immediately bought a bundle of US treasury notes. The announcement and its subsequent denial are not significant developments, in and of themselves. What is more interesting is the way in which currency traders responded to the news, without first stopping to question its authenticity. Perhaps, this proves that investors are not confident about the dollar’s future. The Wall Street Journal reports:

But beyond dispute is how jittery the currency market has turned- and how eager many traders are to pull the trigger- on any news or market talk related to Asian Central banks and a Chinese Yuan revaluation. "The market has become very sensitive to these themes right now," said a director from Barclays Capital.

Read More: More ‘Distorted’ Comments Roil Markets

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Posted by Adam Kritzer | in Exotic Currencies | No Comments »

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