November 09, 2022 09:57
The Korean won strengthened another W16.3 against the U.S. dollar on Tuesday to close at W1,384.9. It has risen W34.3 over the last two trading sessions.
The recovery is attributed to rising hopes that the Chinese government will stop its draconian zero-Covid policy early next year, weakening investor preference for safe-haven dollars. If China stops lockdowns, investors expect the global economy to recover.
Such hopes also sent the main Korea Composite Stock Price Index up 1.15 percent on Tuesday.
The trend is also stoking hopes that the Bank of Korea will increase the key interest rate by only a quarter percentage point at its Monetary Policy Committee meeting on Nov. 24. Until last week it was widely expected to raise the key rate by a half percentage point to narrow the rate gap with the U.S.
The U.S. benchmark interest rate is now an alarming one percentage point higher than Korea's, but a rapid rate hike by the BOK to narrow the difference could cause the Korean economy to slow and make it more difficult for businesses to raise money.
A senior BOK official said, "Even if the funding market is experiencing problems, the BOK could decide to take a big rate hike while the exchange rate is unstable, but now the exchange rate is stabilizing, it may be possible to calm financial markets without it."
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