Korean won falls to 1,270 won level against U.S. dollar in four months

[Photo by Han Joo-hyung]

Investors are watching whether the value of the South Korean won against the U.S. dollar will stabilize at the 1,200 won range as it surged nearly 17 won to the 1,270-won level for the first time in four months amid growing expectations that the U.S. base rate hike will end.

The won closed at 1,271.4 won per dollar on Tuesday, up 16.9 won from the previous day in Seoul. It started at 1,283 won per dollar but the value shot up to as high as 1,270.8 won during the day. The won value has risen above 1,270 won against the greenback for the first time since Feb. 14, when it was 1,269.4 won. It has jumped 50.2 won since the start of the month, driven by signs of recovery in semiconductor exports despite the nation’s current account deficit.

The lift in the value of won came amid expectations that the U.S. Federal Reserve will keep interest rates unchanged at the Federal Open Market Committee (FOMC) meeting scheduled for Tuesday and Wednesday local time.

“Expectations of slowing U.S. inflation are bolstering prospects that the Fed will keep the benchmark interest rate unchanged,” said Baek Seok-hyun, an economist at Shinhan Bank. “The strengthening won gained momentum, coupled with expectations that the domestic memory chips industry will improve.”

Capital reshoring by Korean conglomerates is another favorable factor behind the bullish won. “The won went up and the exchange rate dropped about 10 won Tuesday as market participants liquidated their long dollar positions in response to reports on capital reshoring by domestic conglomerates,” said Moon Jeong-hee, chief economist at KB Kookmin Bank.

Earlier, Hyundai Motor Group announced that it would increase its headquarters’ dividends from overseas subsidiaries by 4.6 times year-on-year and use them as resources for domestic investments.

Most foreign exchange experts note that the won has broken out of the range of 1,300 won against the dollar, where it was trapped for more than two months. However, it remains to be seen whether the won will continue to rise from the current 1,270 won level. A depreciation can happen as the won surged 20.1 won in just three trading days.

The weakened Chinese yuan and Japanese yen also stand as a variable. The Chinese authorities made a surprise cut in short-term interest rates on Tuesday, but the yuan remained at 7.16 yuan per dollar, the lowest since late November last year. The yen was also weak at 139.56 yen per dollar, leading to a lower won to yen exchange rate of 910.97 won per 100 yen as of Tuesday at 3:30 p.m. The won has fallen below 920 won per 100 yen for the first time in seven years and 11 months since July 3, 2015, when the exchange rate was 912.34 won.

“The won tends to show coupling behaviors with the yuan and yen and is hard to go strong alone,” Moon said.