Korean won loses ground despite weak U.S. dollar on economic vulnerabilities

A street money changer in Myeongdong, Seoul [Photo by Yonhap]

The South Korean won has been losing its value against the U.S. dollar for nearly two months despite the weakening greenback, an unusual trend as the won and other currencies tend to gain on a weak dollar.

According to Bloomberg on Sunday, the U.S. Dollar Index (USDX), which measures the value of the U.S. dollar relative to the currencies of six major countries, was 101.66 on Friday, down 2.7 percent from the beginning of the year.

The won, in particular, fell 5.2 percent against the U.S. dollar during the same period. The won fell 8.3 percent against the greenback over the past three months, the steepest decline among the currencies of 16 major countries including those of Japan and China.

The won’s depreciation was the steepest even by the real effective exchange rate, which measures the value of a currency against a weighted average of several currencies based on purchasing power parity.

According to an analysis conducted by Maeil Business Newspaper of the Bank for International Settlements (BIS) data, the real effective exchange rate of the won was 94.79 in March, down 3.6 percent from January.

Korea ranked fifth in terms of the real decline among the 63 countries studied by BIS. The depreciation was also bigger than minus 1.9 percent of Japan, minus 1.3 percent of China, and 0.1 percent of Taiwan.

The won broke the lows against the U.S. dollar after breaking the 1,330 won level last week. The USDX changed little during the same period.

Analysts note that the won’s depreciation amid the weak dollar comes as the Korean economy remains vulnerable due to sluggish chip exports and trade deficits that have continued for 14 straight months.

The U.S. dollar was traded at 1,337.7 won on Friday, up 2.7 percent from 1,301.9 won at the end of March. The won weakened the most among the currencies of 26 major countries after the Argentine peso and the Russian ruble.