November 24, 2024

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An electronic board shows the Korean won-US dollar exchange rate closing at 1,394.5 won at Hana Bank's trading room in central Seoul, Tuesday. (Yonhap)

The Korean won weakened to 1,400 won against the US dollar during trading hours Tuesday, marking a new 17-month low as the Korean economy faces headwinds from the escalating volatility in the Middle East.

The local currency against the greenback closed at 1,394.5 won, losing its value by 10.5 won from the previous trading day.

Shortly after trading began at 1,389.9 won, the rate weakened to 1,400 won to $1 at 11:32 a.m., marking the first time in 17 months for the currency exchange rate to hit the 1,400 won bar since November 2022.

The won-dollar exchange rate has weakened further three times prior, including during the financial crises in 1997-1998, 2008-2009 and amid the Legoland credit default at the end of 2022.

The sharp depreciation of the Korean won results from the safe-haven appeal of the US dollar, evoked by Iran’s attack on Israel, and weakened anticipation about the US Federal Reserve possibly taking a pivot in its monetary tightening policy.

The hotter-than-expected US retail sales growth released overnight also fueled the outlook that the US Fed could delay its policy turnaround, showing the country's resilient consumption. Retail sales in the US rose 0.7 percent in March, higher than the market expectation of 0.3 percent.

On guard against currency volatility, the forex authorities conducted a verbal intervention to stave off further fluctuations Tuesday. The local authorities sometimes make an intervention in the forex market by releasing a message of vigilance or by conducting transactions.

"The authorities are closely and alertedly monitoring the exchange rate and the supply and demand of foreign exchange. Excessive strain on the market is not desirable for the Korean economy," a statement issued by officials at the Finance Ministry and the Bank of Korea read.

It was the first time in 19 months for the authorities to give out a verbal intervention for the forex market.

With the devaluation of the won, the local stock market has slumped as well. The main bourse Kospi closed at 2609.63 points, down 60.80 or 2.28 percent lower than previous trading. It was the sharpest drop in three months since the 2.47 percent decline in Jan. 17 (2.47 percent).

Though it opened at 2644.17 points, it later slid to a low point of 2,601.45 points before making a slight recovery.

Foreign investors and institutional investors on a selling spree each net-sold 274.6 billion won and 293.4 billion won, respectively, while retail investors racked up 549.5 billion won.

The secondary market Kosdaq closed at 832.81, plunging by 19.61 points or 2.3 percent, after kicking off at 845.54.

By Im Eun-byel (silverstar@heraldcorp.com)
The Korea Herald