S. Korea keeps close eye on won's weakness against US dollar

The South Korean government is keeping a close eye on the won's weakness against the US dollar amid fears of capital flight in the face of a gradual rise in US interest rates.

The won closed at 1,203 won against the US dollar Friday, down 3.9 won from a day earlier. It marked the Korean currency's weakest closing since March 10 this year. 

The won's value against the US dollar declined by 3.1 percent since Dec. 14, a day before the US Federal Reserve raised interest rates and hinted at a faster pace of increases next year.

Some foreign investment banks predicted that the won is likely to decline to about 1,300 won against the US dollar in the second quarter of next year.

"We are strengthening our monitoring of the foreign exchange market," a government official said.

"The government's stance is that it will swiftly and firmly cope with the market if any abnormal signs in the market take place," the official said.

In spite of fears of capital outflows, a weaker Korean currency boosts the earnings of exporters, such as Samsung Electronics Co. and Hyundai Motor Co.

South Korea's exports gained 2.3 percent in November, marking the strongest pace of rise in about two years.

According to a report by the Korea Institute for Industrial Economics & Trade, an average operating profit margin of local manufacturers will rise by 0.05 percentage point if the won falls to the dollar by 1 percent.

However, a weaker currency is unlikely to significantly help exporters boost their earnings as the global economy is struggling with protectionist measures.

Last week, the Bank of Korea said protectionist measures cut South Korea's exports on a customs clearance basis by 0.5 percent, or $2.4 billion.

The central bank said protectionist measures, if the current trend persists, could slash South Korea's exports by 0.8 percent per year on average between 2017 and 2020. There are concerns that US President-elect Donald Trump's possible protectionist measures, if realized, could deal a blow to South Korea. (Yonhap)