KRW likely stay above 1,200 vs USD till March amid volatility in stock mkt

A dealer stands in front of currency signboard at KB Kookmin Bank headquarters in Yeouido, Seoul, on Thursday when the won broke 1,200 versus dollar. [Photo by Han Joo-hyung]

South Korea’s won hovers below psychologically-important 1,200 versus the U.S. dollar Friday despite intervention from authorities as foreign investors cash out of Korean assets amid faster monetary tightening cycle due to runaway inflation and favoring of safe assets on geopolitical risks.

The U.S. dollar added 1.40 won to 1,204.9 won in early Friday after closing 5.1 won higher from 1,197.7 won to 1,202.8 won on Thursday, returning back above the psychological level of 1,200 won.

The Bank of Korea on Thursday issued another verbal warning of “taking necessary stabilization actions” on “heightened monitoring” on domestic and external factors on the exchange rate.

The won lost grounds together with Korean stocks after the U.S. Federal Reserve hinted it would have to lift rates from as early as March to tame inflation.

The Kospi fell 3.5 percent on Thursday, or off 12 percent so far this year to become one of the biggest losers among key stock markets.

Persistent foreign selloff and dollar demand from exporters in fear of further appreciation in greenback weighed on the local won despite apparent intervention from authorities since the dollar’s visit above 1,200 won on Jan. 6 for the first time in 17 months.

Finance minister Hong Nam-ki on Jan. 10 had warned authorities were “keenly”” watching the exchange rate movement. Since then, the dollar briefly went as far as 1.180 won.

“The U.S. is poised to raise interest rates sharply, but Korea won’t be able to keep up with the pace,” observed Lee Jeong-hwan, professor of economics and finance at Hanyang University. Interest rates in 2 to 3 percent range would dampen investment and growth potential in Korea.

According to BOK, Korea’s growth potential has dropped sharply to 2.5~2.6 percent for the years 2019 and 2020 from 5.0~5.2 percent for 2001~2005, 4.1~4.2 percent for 2006~2010, 3.0~3.4 percent for 2011~2015, and 2.7~2.8 percent for 2016~2020.

Risk aversion has accelerated amid escalated tensions between the Western powers and Russia.

“Volatility is inevitable until March,” said Seo Jung-hoon, a researcher at Hana Bank.

Baek Seok-hyun of Shinhan Bank projected the dollar can go up to 1,210 won. When the dollar goes as high as 1,250 won, big companies with leveraged debt in U.S. dollars could face difficulties while inflation would accelerate from spike in raw materials and import prices.

[ㄏ Maeil Business Newspaper & mk.co.kr, All rights reserved]