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Electronic sign boards at a Hana Bank dealing room in Seoul show the dollar-won exchange rate on Wednesday. (Yonhap News)

The resurgence of COVID-19 and sharp inflation in the US has pushed the dollar-won exchange rate close to 1,150 won.

The dollar-won exchange rate Wednesday ended at 1,148.5 won, up 3.1 won, in foreign exchange trading in Seoul. The rate rose as high as 1,151.9 won during the day.

The strength of the greenback seemed to be due to the jump in US consumer prices in June, which was announced on Tuesday. But the trend in the greenback doesn’t fully explain the weakening won.

This month, the US dollar index — which tracks the value of the dollar relative to a basket of six major currencies, including the Euro — has actually fallen by 0.35%. But the value of the won has fallen 1.99% against the dollar over the same period.

The Chinese yuan, which has a major influence on the direction of the won, has stayed strong even after the People’s Bank of China lowered the cash reserve ratio.

That suggests that the falling value of the won may have more to do with the upswing in COVID-19 cases in South Korea than with overseas factors. In other words, the won may be weakening over concerns that a recovery in the domestic market, including consumption, may be delayed as the Korean government toughens disease control measures by raising social distancing in the greater Seoul area to Level 4.

“If the dollar-won exchange rate breaks through major resistance at 1,150 won, we’ll have to raise our target to 1,170 won,” said Kwon Hui-jin, an analyst with Korea Investment and Securities.

The won is being weighed down by the possibility that South Korean and US monetary authorities may not agree on the timetable for austerity.

The rapid spread of the Delta variant of the coronavirus might force the Bank of Korea (BOK) to reconsider its tentative plan to raise the base rate once or twice this year. But the US Federal Reserve is under increasing pressure to speed up retrenchment as the inflation rate starts to climb.

But others say the exchange rate won’t rise much further, even if the situation deteriorates, because the market isn’t as sensitive to COVID-19 as it used to be. The dollar-won exchange rate shot up 102 won in February and March 2020, when the global pandemic began, but only 21 won in December 2020, during Korea’s third wave of the outbreak.

“We can’t count on the won to stabilize right away, but the exchange rate will drop as soon as the government’s vaccination program gets going again,” said Kim Hyo-jin, an analyst with KB Securities.

By Han Gwang-deok, Finance Correspondent

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