By Yoon Ja-young
Staff Reporter
The Korean won is weakening against the dollar, amid other currencies strengthening against the greenback. Analysts attribute the curious development to the exodus of foreign investors from the Korean stock market, the current account deficit, and the new finance minister's determination to protect exporters from a weak dollar.
The won closed at 957.5 won against the greenback Friday, up 7.9 won from the previous day, the highest exchange rate since October 2006. The weakening won against dollar, however, contrasts with the strength of other currencies. The value of the euro against the greenback rose to a record-high Friday, on growing concern over a recession in the United States. The euro has appreciated over 6 percent against dollar since October last year, while the yen has appreciated 9.5 percent. The won, meanwhile, depreciated by 5.4 percent.
Analysts attributed the unique weakening of won to a number of factors, including the ``Kang Man-soo effect.''
Strategy and Finance Minister Kang Man-soo's allusion that the government would intervene to sustain a strong dollar to support exporters is motivating market players to buy dollars, according to currency dealers. The greenback, which once fell to 936.5 won on Feb. 28, started rising again following the inauguration of the new minister.
An increasing current account deficit is also pulling down the value of the won. The country saw a $2.6 billion current account shortfall in January, the biggest monthly deficit during the last 11 years. Despite a 15.4 percent growth in exports, imports increased by 31.1 percent on soaring international oil prices. A current account deficit means more demand for dollars, and consequently, the strengthening of the greenback.
A sell-off of Seoul stocks by foreign investors following the U.S. subprime mortgage trouble is adding to the weakening of the won. Having turned risky asset aversive, foreign investors have sold off 12 trillion won worth of stocks so far this year. The remittance of dividend to home countries by foreign investors is also increasing demand for the greenback.
Though a weak won helps exporters, it is considered as a negative in times of inflationary pressure as import prices get even higher in terms of the local currency.
Families who sent children abroad to study are also shouldering more of a financial burden.
Analysts estimate the won will continue its weak trend until the second quarter as the subprime mortgage woes continue rattling the global capital market. ``The current account is expected to turn to surplus in the second quarter, and the record low number of foreign investors on the Seoul bourse is unlikely to make a further sell-off probable. The new administration is also expected to induce foreign direct investment to secure growth,'' said Lee Sung-kwon, an analyst at Goodmorning Shinhan Securities.