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| Traders work at a dealing room at the Hana Bank headquarters in Seoul, Monday. A screen in the background shows the rising won-dollar exchange rate which closed at 1,097.3 won per dollar, up 7.5 won, from the previous trading day. Yonhap |
By Lee Min-hyung
The U.S. dollar is gaining ground against the Korean won on hopes of a faster-than-expected economic rebound of the world's largest economy after the Biden administration takes office.
After pandemic fears started escalating in April last year, the won-dollar exchange rate dipped to below the 1,100-won level per dollar. Early last year, the won was traded at as high as around 1,280 won per dollar.
From the beginning of 2021, however, the dollar has been strengthening its valuation against the Korean currency. A lingering fear of tension between the U.S. and North Korea is also seen as a factor to drive up the valuation of the safe asset, after North Korean leader Kim Jong-un underlined his country's nuclear developments in a recent New Year address.
The rising exchange rate is expected to persist for the time being, but is not enough to pose any threat to the local exchange market, according to experts.
As of Monday, the won-dollar exchange rate started with a rise of 3.7 won from the closing price of the previous trading day, and reached closer to the 1,200-won mark by closing at 1,097.3 won per dollar, up 7.5 won.
Local economists said the won-dollar exchange rate would not fluctuate widely this year, compared to last year, as no clear risk factors are detected this year. They also said the impact of Biden's pump-priming measures on the exchange rate remains to be seen.
"The expansionary fiscal policy of the U.S. will come as a factor to depreciate the dollar against the won, but on the other hand, this also raises hopes for a faster recovery of the U.S. economy, which may end up strengthening the dollar against currencies from emerging markets," Korea Capital Market Institute macroeconomist Kang Hyun-ju said.
Even if the dollar is showing signs of a rebound against the Korean won, it still remains to be seen whether this will persist for a longer period of time, according to Kang.
"When the U.S. economy makes a rapid rebound thanks to a number of factors ― such as employment stabilization and a hike in the bond interest rate there ― global capital will flow into the U.S., rather than risky assets," he said. "This will end up weakening the won's valuation against the dollar. But from a near-term perspective, the won-dollar exchange rate will be affected more by foreign investors' capital inflow and outflow in the local stock market."
Hana Financial Investment expected the won-dollar exchange rate to be around 1,100 won per dollar on average in 2021.
The brokerages firm said the depreciation of the dollar against emerging market currencies would remain in place throughout 2021.
"This is because the U.S. will likely continue to adopt a monetary easing and expansionary fiscal policy this year," Chun Kyu-yeon, an analyst at the securities firm, said.
A reviving fear on trade disputes between the U.S. and China will have a limited impact on the foreign exchange market, as Biden is expected to maintain the Trump administration's hardline stance against the Chinese economy, according to Hana Financial.
