hankyoreh

The foreign exchange trading room at a major bank. (Yonhap News)

A clear trend of strength has emerged with the South Korean won as exchange rates have fallen. On Nov. 11, the won-to-US dollar exchange rate reached a 23-month low of 1,110, with some observers predicting it could fall below 1,000 in the near future. While it went up 4.8 won on Nov. 12, the prevailing forecast is that the decline will continue.

The strength of the won stems from the weakness of the dollar — a climate that has been intensifying since Democratic Party candidate Joe Biden’s interim victory in the US presidential election. Anticipation of large-scale expansionary measures has led to a decline in the dollar’s value. This has been the backdrop of the strength of currencies in emerging economies, including South Korea.

According to a report on international financial and foreign exchange market trends since October published by the Bank of Korea (BOK) on Nov. 12, the JP Morgan Emerging Market Currency Index (EMCI) had risen by 2.6% from its late September level as of Nov. 10. This translated into an increase in the currency values of the 10 countries reflected. The Mexican peso had the biggest rise in value at 8.8%, followed by the South African rand at 7.0%, the Indonesian rupiah at 5.9%, and the South Korean won at 4.9%.

“With the ongoing weakness of the dollar and strength of the yuan, the won-at-dollar exchange rate has continued to decline amid expectations of economic recovery due to relatively positive economic indicators [growth rates and current account surplus conditions],” BOK explained. According to this explanation, the value of South Korea’s currency has risen because of the relative soundness of South Korea’s economic situation.

Chun Kyu-yeon, a senior analyst with Hana Financial Investment, explained, “The won [exchange rate] has been declining amid a combination of the US dollar’s weakness and the yuan’s strength.”

“This is a reflection of anticipation of support measures in the wake of the US presidential election, as well as trends of economic recovery in South Korea and China,” Jeon said.

Kwon Ah-min, an analyst with NH Investment & Securities, said, “Since September, the won has ranked among the strongest of the major economy currencies.”

“If we take the fiscal deficit keynote after the US presidential election into account, along with additional economic support policies and the collective recovery of the global economy, the trend of weakness in the dollar is very likely to continue,” Kwon predicted. Lending further weight to these predictions are trends of increase in domestic exports and the current account surplus. Kim Hyo-jin, an economist with KB Securities, predicted, “The won will remain strong next year based on the strength of the yuan and a recovery in exports.”

Some variables include the potential intervention of foreign exchange authorities and uncertainties surrounding the global economy. With the rapid strengthening of the won, export-based businesses and others have been calling for efforts to slow the pace, which could lead to the brakes being thrown on an additional decline. The prior reflection of expectations for Biden’s election have also been mentioned as a variable. Kim Hyo-jin said, “If you factor in the reaction against the recent rapid rise of the won and the climate with the Chinese government’s efforts to slow the pace of the yuan’s strengthening, the recent strengthening could be reversed to some extent.”

By Kim Young-bae, staff reporter

Please direct comments or questions to [english@hani.co.kr]