Korea’s foreign exchange market opened Monday with the local currency slightly weakened against the U.S. dollar as forex officials continued to caution traders as a means to prevent the won from excessive gains.
But won-dollar exchange rate closed 0.7 won lower at 1,061.10 won on Monday despite the government’s reaffirmed stance against a stronger won.
Foreign capital inflow into Korea’s stock market kept the U.S. dollar weak against the won, while boosting the benchmark KOSPI by 0.68 percent to 2,048.14.
An official of the Ministry of Strategy and Finance told the press that it will “not sit idly by” and let a declining exchange rate hurt Korea’s economic recovery efforts as negative external factors, such as the tapering of the U.S. quantitative easing, have waned.
“We will control the pace (of the won against the dollar) so that the exchange rate will not adversely affect the economy,” the official said.
Last Thursday, forex officials from the Finance Ministry and the Bank of Korea intervened for the first time in five years to devalue the won after the rate fell to a year-low of 1,054.3 won during trading.
Bank of Korea Gov. Kim Choong-soo said last Friday that there are many ways to tame the increasing forex volatility. Deputy Prime Minister and Finance Minister Hyun Oh-seok noted that the government is looking at all options, including a set of “macro-prudential measures,” to slow the won’s strength.
BOK Gov. Kim added that it would closely watch inbound capital for any speculative investment activity.
Analysts forecast that a weak dollar would be inevitable for the time being as local exporters are showing signs of unloading their dollar holdings before the won gets more expensive.
Some analytical reports such as from Samsung Futures reported that the won could get as strong as 1,000 won by early next year on the back of delays in the U.S. monetary stimulus cuts. There is a general market consensus that tapering could begin as early as March.
An industry source said that the won could reach 1,000 won against the greenback as it remained “undervalued in accordance with its fundamentals.”
However, Lee Ji-hyung, an FX strategist at Woori Investment & Securities, pointed out that the pace of the won’s strength could slow down or end given the government’s drive for a weak currency.
“Also, there is a chance for the exchange rate to soar beyond the current level toward the end of this year as foreign equity investments could wind down,” Lee added.
By Park Hyong-ki (
hkp@heraldcorp.com)
