By Lee Hyo-sik
Staff Reporter

The Korean won will likely continue to gain ground against the dollar over the next few years, sending the exchange rate down to three-digits in 2011 for the first time in four years, according to an international financial consulting firm, Tuesday.

Citing the easing of the global financial market jitters and the nation' strong growth, Global Insight reported that the won-dollar rate will average around 1,273 won this year and decline to 1,054 won in 2010 and 980 won in 2011.

The local currency traded at an average of 930 won against the greenback in 2007, on the back of active foreign buying of local stocks and bonds.

On Tuesday, the local currency gained 0.6 won to close at 1,203.8 won from the previous trading session, boosted by foreigners' massive buying of local stocks. It marked the strongest rate against the greenback since Oct. 1, 2008, when it traded at 1,187 won per dollar.

Even though the strengthening of the won is a bonanza for Korean travelers and students abroad, its rapid rise is feared to chip away at the price competitiveness of domestic companies on overseas markets and thus shrink the nation's outbound shipments.

The consulting firm said Korea's faster-than-expected economic rebound has eased concerns over its foreign exchange liquidity, adding that international investors will not bet against the Korean won.

Following the collapse of Lehman Brothers a year ago, foreign investors dumped local stocks and bonds, and took dollars out of the country en masse, sending the local currency into a plunge. The won was depreciating sharply against the dollar and the yen, and the foreign exchange reserves were shrinking rapidly, with many foreigners raising the possibility that the nation could face a recurrence of the foreign exchange crisis.

But with the signing of the currency swap deal with the U.S. and a range of government steps to stabilize the financial sector and the overall economy, the won has regained strength over the past few months.

However, the strong won is not good news for everyone. Local exporters may suffer losses in foreign markets because of the deteriorating price competitiveness. But the extent of the negative impact will not likely be as severe as some fear because the Japanese yen has also strengthened against the greenback. Korean firms are locked in fierce competition with their Japanese rivals in automobile, electronics and many other consumer markets across the globe.

"The local currency lost its value sharply last year. But it has gained some ground this year. We expect the won-dollar rate to show a downward curve at a modest pace," an official at the Ministry of Strategy and Finance said.

Korea Exchange Bank (KEB) currency dealer Lee Young-chul echoed the government view, saying the won will continue to appreciate against the greenback but the pace of the rise will moderate down the road.

"We think that the won-dollar rate will fall below 1,200 won toward the year's end. In 2010, the rate will likely drop further, hovering around 1,100 won on the nation's continued trade surplus and active foreign buying of local stocks and bonds. Korea's outpacing of other major economies in growth has and will contribute to raising the won's value," Lee said.

He then said the strong won will not negatively affect the country's exports as severely as it did in the past. "Besides the price competitiveness, Samsung and other companies here are performing better than their rivals on the global stage thanks to their improved brand image, design and technologies. I think, despite the won's strength, they will continue to post strong results across the globe."

leehs@koreatimes.co.kr