Won’s weakness likely to continue

The won gained against the U.S. dollar amid expectations of a delay in the U.S. Federal Reserve’s interest rate hikes, but the South Korean currency is showing signs of weakening again after the Chinese central bank cut its benchmark rates to jumpstart the country’s sagging economy.

On Monday, the greenback rose by 9.1 won from a trading session before to finish at 1,133.8 won, as the U.S. currency was strong against most Asian counterparts from China’s monetary easing once more.

Local currency dealers are focusing on the possibility that the dollar will gain further as the Chinese Communist Party’s policymaking Central Committee on Monday embarked on its fifth plenary session ― a key four-day meeting that will be closely watched by investors worldwide.

The People’s Bank of China cut the key rates by 25 basis points alongside a half-percentage cut in the reserve requirement ratio last Friday.
 

According to global research institutes, the fifth plenum is the fifth of seven major meetings held by China’s Central Committee, a political body consisting of the party’s top leaders. Plenum topics will likely include lowering China’s GDP growth target and speeding up state-sector reforms.

Tuesday and Wednesday’s meeting of the U.S. Federal Open Market Committee is also drawing attention.

“While the possibility that the FOMC will choose to raise the rate this month is not high, its rate-setters may hint at a hike in coming months (at the December gathering),” said wownet.com senior analyst Shin Hak-soo.

In addition, a decision-making meeting of the Bank of Japan will convene on Oct. 30, while more and more market participants are predicting it to push for further quantitative easing.

As a result, the Korean currency is gaining versus the Japanese yen. The Japanese currency dropped for the second consecutive session to close at 936.41 won per 100 yen on Monday, from 950.39 won last Thursday.

Some analysts issue the feasibility that the U.S. may join major countries’ struggle to lower their currency value. Some global investment banks predict the U.S. rate hike will be postponed to March 2016.

In the third quarter, the U.S. dollar rose from 1,120 won in early July to hover around 1,200 won in early September. Similarly, the yen continuously increased to 1,000 won per 100 yen in early September.

“The won-dollar exchange rate has failed to maintain its steady direction at the present stage,” A Kyobo Securities researcher said.

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