Korean won drops as U.S. Fed hints at rate hike

The Korean currency lost ground against the U.S. dollar on Thursday, as the market regarded the Federal Reserve’s stance, publicized overnight via written statements, as a relatively hawkish monetary policy.

The dollar rose by 0.99 percent, or 11.3 won, from the previous trading session to close at 1,142.3 won. Over the past two weeks, the greenback traded between the 1,120 and 1,135 mark.

Despite the possibly further depreciation of the Korean won in the coming weeks, analysts say that the uncertainty involving the currency exchange direction is likely to linger on until Dec. 15-16, when the next meeting of the Federal Open Market Committee, the interest rate-setting panel of the U.S. Fed, will be held.
 

“According to the majority of global investment banks, a rate hike in the U.S. could be possible only if the country confirms improvement in a variety of indexes involving employment,” said the Korean Center for International Finance.

KCIF cited a BNP Paribas report, which criticized the Fed’s hinting at a hike in December despite the symptoms of slowdown in economic conditions.

An analyst from LG Economic Research Institute agreed the possibility of the won’s weakness on a near-term basis. “But the dollar is not projected to rapidly reach the 1,200 mark, as Korea’s third-quarter gross domestic product posted relatively robust (better-than-expected) growth.”

The won also fell versus the Japanese currency, which finished at 945.03 won per 100 yen, up 0.52 percent from a session earlier.

The benchmark KOSPI lost 0.41 percent to close at 2,034.16, while U.S. stocks gained 1.13 percent overnight. China and Japan also saw their equities rise despite the Fed’s position.

On the Korean main bourse, foreigners net sold 16.2 billion won ($14.2 million) worth of stocks. While local institutions were also net sellers, small investors net bought 82.6 billion won worth.

The secondary KOSDAQ dropped 0.42 percent to finish at 690.63.

Analysts downplayed the feasibility of a massive capital flight at the present stage. They say that many global investment banks maintained their prediction that the timing of a U.S. rate hike will not be this December, but next year.

Some local analysts said that the Fed has already failed to effectively communicate with the market and may lose credibility in some manner.

In the first half of 2016, the FOMC for rate-setting is scheduled to convene four times -- on Jan. 26-27, March 15-16, April 26-27 and June 14-15 in Washington, D.C. 

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