November 30, 2024

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The electronic board at a dealing room of Hana Bank headquarters in Seoul shows the Korean currency’s gain versus the US dollar during Wednesday’s trading session. (Yonhap)

SEJONG -- The Korean currency gained against the US dollar on Wednesday, a day after finance ministers from South Korea and the US said they could take actions like supplying liquidity for stabilization of the foreign exchange market.

The price of the Korean currency strengthened 0.5 won from a trading session earlier to close at 1,312.9 won per dollar.

After peaking at 1,326.1 won on Friday, the greenback fell against the won for a third consecutive trading session.

This could be attributable to a recovery in sentiment for global investors’ preference for risky assets, on the back of robust earnings posted by major US businesses, according to brokerage firm-based analysts.

In addition, the agreement Tuesday between Korea’s Finance Minister Choo Kyung-ho and US Treasury Secretary Janet Yellen is estimated to have somewhat affected the Korean currency’s gain.

The Finance Ministry said the two ministers agreed to closely cooperate in helping stabilize the foreign exchange market. It said that the two sides “have the ability to implement various cooperative actions, such as liquidity facilities, if necessary.”

Kiwoom Securities research analyst Kim Yoo-mi said, “The sentiment of investors’ preference for safe havens has weakened in the financial market, as stocks listed on the US bourses gained.”

An NH Futures analyst said that the remarks signaling possible preemptive measures in the foreign exchange market between Choo and Yellen would likely provide the won-dollar exchange rates with favorable conditions, though there was no particular comment on a currency swap deal between the two sides.

The dollar, which fell to the 1,100 won range in late 2020, has been bolstered over the past 1 1/2 years amid the US economy’s fast recovery during its pandemic normalization period.

Further, a critical glitch in global supply of raw materials as well as Russian invasion of Ukraine fanned the flames of a strong dollar this year, amid a growing preference for safe havens.

Korean policymakers actively intervened in the foreign market in the second quarter this year to curb the won’s sharp depreciation, by conducting verbal interventions or by reportedly selling dollar-denominated assets.

Nevertheless, the Korean currency eventually weakened to the psychological barrier of 1,300 won per dollar in late June, and has mostly traded over 1,300 won in July.

The weak won has fanned inflation over the past few months, as the nation has suffered a spike in import prices of raw materials involving crude oil.

It has also weakened the purchasing power of Koreans overseas as well, while more and more people have begun taking overseas trips amid normalization from the COVID-19 pandemic.

For the exports sector, the won’s weak position might raise price competitiveness on the global stage. But market insiders say exporters could suffer losses or weakening productivity from spiraling import prices of raw materials used for their processed goods.

Under these economic conditions, Korea has been suffering a continuous trade deficit despite brisk outbound shipments, with the nation seeing an all-time high trade deficit of $10.3 billion in the first half of 2022.

By Kim Yon-se (kys@heraldcorp.com)