Currency, stocks gain on U.S. dovish position on rate hike

The dollar’s continuous gain against the Korean won halted Thursday as currency traders widely predicted that the U.S. Federal Reserve would raise the key interest rate, but on a moderate basis.

In addition, both the benchmark KOSPI and secondary KOSDAQ gained, though the extent was slight. Foreign investors, however, were net sellers on the bourses.

Though the Federal Open Market Committee, which held its monthly meeting from June 16-17 in Washington, D.C., has hinted at a rate hike in the coming months, it has not fixed the timing. It also hinted that the pace would be gradual.

As a result, the dollar slid 10.8 won from the previous trading session to close at 1,107.1 won. The Korean currency also gained versus the Japanese yen and the Chinese yuan.

After hitting a yearly low of 1,068.60 won on April 29, the won-dollar exchange rate has continued to rise over the past month amid the growing concern over possible capital outflow from the Korean financial market after a coming rate hike in the U.S.

“The U.S. dollar dropped to the cheapest level in the global market in the wake of the dovish stance of Federal Reserve Chair Janet Yellen,” said Woori Futures research analyst Sohn Eun-jung.

But Sohn said capital outflow in the emerging markets was underway due to ongoing uncertainties involving Greece woes and volatility on the Chinese stock market.

“The Korean stock market could also be negatively affected amid the MERS outbreak and sagging exports, which may be linked to weaker positon of the Korean won (in the coming weeks and months),” she said.

The KOSPI inched up 7.02 points, or 0.34 percent, to close at 2,041.88 on Thursday. The KOSDAQ rose by 6.59 points, or 0.92 percent, from a trading session earlier to reach 725.20.

Earlier in the day, government officials forecast that the coming U.S. rate cut would have a limited effect on the Korean financial market.

Their projection came from the meeting of ranking officials from the Finance Ministry, the Financial Services Commission, the Bank of Korea, the Financial Supervisory Service and the Korea Center for International Finance.

Vice Finance Minister Joo Hyung-hwan said a large portion of financial policymakers shared the view that “considering the financial soundness and (favorable) macroeconomic indices, there would be no big (negative impact) on the market even if external woes occur.”

Though Korea could see an outflow of foreigners’ funds after a U.S. rate hike, an economic recovery in the U.S. could also be beneficial to the Korean economy in terms of improvements in exports and other aspects, Joo said.

By Kim Yon-se (kys@heraldcorp.com)