January 08, 2018 12:26
The won is strengthening at an even faster clip. The Korean currency closed at W1,061.2 against the U.S. dollar last Tuesday, the first day of trading in the New Year, at the highest level in three years and two months.
Foreign exchange authorities tried to tame the pace through several verbal interventions, but to no avail. The won strengthened even further to W1,060.2 during intraday trading Friday.
Last year's exchange rate soared from W1,208 in January to W1,070.5 at the end of December, driven by soaring exports, signs of an economic recovery, a base rate hike by the Bank of Korea and stock and bond buying by foreign investors.
Now the North Korean risk looks to be easing somewhat as North Korean leader Kim Jong-un made diplomatic overtures in his New Year's address.
A global weakness of the dollar is doing the rest. The dollar fell last year after the U.S. Senate passed tax cuts that are expected to reduce tax revenues by more than $1 trillion, raising concerns of a fiscal deficit.
Analysts forecast the won will strengthen to less than W1,050 against the dollar. Kim Sung-bong at Samsung Securities said it will rise to W1,000 in the first half, but if U.S. interest rates rise in the second half, the dollar could strengthen again.
But Park Hyung-joong at Daeshin Securities said, "There is a chance of the won strengthening to W1,050, but forex authorities probably will not permit any more."
A strong won hurts Korea's vital exports by making them more expensive overseas. Hyundai and affiliate Kia say they lose money selling cars in the U.S. if the won strengthens to less than W1,050 to the dollar. And it is exports that are powering the economic recovery as domestic consumption remains weak.
Korean foreign exchange authorities' hands are tied as the country is already on a U.S. watchlist for currency manipulation.
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