Feb 23, 2005

Korea's Clarification

The most interesting part of the new statements addresses diversification into non-government bonds.
However the BoK said in a statement on Wednesday that it was looking to invest more in non-government bonds and that it would not sell current dollar holdings for other currencies.
Korea has been adding to reserves at a pretty fast clip so even by limiting the policy change to new investments it will still have a pretty strong impact.
We already know that Korea has battled mightily against won appreciation over the past two years, with the Bank of Korea's foreign reserves growing 27% since January 2004 and a stunning 62% since January 2003. And yet the won continues to rise. In early April 2003 the dollar bought around 1260 won; now it buys less than 1030 won, a nearly 20% appreciation.
How the U.S. funds this years borrowing need is really what is on the table.

Some of the dollar strength this morning is being attributed to the Korean clarification but it seems more likely it is a response to one-sided trading yesterday that set a near-term low.

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