November 29, 2024

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The South Korean won fluctuated sharply Wednesday, reaching a 13-year intraday low at 1,352.3 won per dollar in the onshore market before closing at 1,337.6, 0.68 percent stronger than the Tuesday’s close, as the dollar continued its rally and the euro pared losses later the day.

The search for safe-haven assets like the dollar is still strong, as investors reassess the prospect for higher US rate in light of a more hawkish tone on inflation set by the US Federal Reserve over the weekend. US Federal Reserve Chair Jerome Powell backed raising rates and holding them at a higher level until prices are down at the annual Jackson Hole meeting of central bankers in Wyoming.

A warning Korean authorities issued last week just days before the Jackson forum, saying they would arrest the decline in the won if necessary, quickly wore off in the face of Powell’s resolve. Crossing the key psychological threshold of 1,300 won per dollar is considered a red flag for the export-led economy because higher import bills, chiefly involving oil, would offset any gains in exports.

But the won recouped losses later the day as the euro rebounded on speculation that the European Union could intervene in its energy market to tame surging electricity prices.

European Commission chief Ursula von der Leyen said Monday preparations were underway to not only decouple the price of power and gas but to change the way electricity prices are set. Gas prices in Europe are set to hit double-digit gains at the end of August as Russia cuts supplies to the continent -- a move The EU chief executive has called “blackmail.”

Remarks from Korea’s top financial regulator further calmed the jumpy currency market. Kim So-young, vice chairman of the Financial Services Commission, said his agency would be “proactive” in handling expanding volatility and responses to it will be “made without a delay.”

Mixed economic signals will fuel market volatility for some time, analysts said, referring to the latest data from the Bank of Korea on foreign currency bank deposits.

According to the central bank, total deposits edged up $3.32 billion to $90.38 billion at the end of July from June. Dollar deposits rose $2.86 billion to $76.47 billion, while those denominated in the euro soared $570 million to $5.2 billion.

An official at the central bank said the increase in the deposits reflects growing expectations that the dollar will continue its rally – a projection shared by not only consumers, but also businesses, which were holding off on selling dollars amid their surge. The July increase in deposits marks a shift from a drop in June, when deposits fell $2.11 billion from a month earlier.

By Choi Si-young (siyoungchoi@heraldcorp.com)