By Kim Jae-kyoung
The government stepped into the currency market Tuesday to curb the won's rapid appreciation against the dollar, with the local currency under strong upward pressure due to the robust first-quarter economic performance and upcoming listing of Samsung Life Insurance.
Due to the intervention, the local currency closed at 1,110.1 won per dollar, down 6.5 won from Monday when it hit a 19-month high.
This was the first intervention since Oct. 1 last year, when the won rose to the upper half of the 1,170 won range. The move is interpreted as the government's intention to prevent the won-dollar exchange rate from falling below the psychologically-important 1,100 won level.
"We believe there is one-sided betting on the local currency market due to excessive expectations that the Korean won will climb against the dollar," said Kim Ik-joo, chief of the international financial bureau at the Ministry of Strategy and Finance. "We will take action to stabilize the market if necessary."
The local currency gained more ground in early trading as the central bank reported that the economy posted a better-than-expected growth of 7.8 percent during the first quarter.
The won has risen 5.61 percent to the dollar so far this year amid the economic recovery and continued dollar inflows from local exporters and foreign investors. It closed at 1,102.6 per greenback on Monday.
In the meantime, the stock market showed a bearish performance as investors took a breather following recent sharp gains. The benchmark Korea Composite Stock Price Index (KOSPI) declined 2.65 points, or 0.15 percent, to finish at 1,749.55.
The key index traded in negative territory throughout the session, with institutional sell-offs weighing on the market. The KOSPI rose to a nearly two-year high on Monday as signs of the global economic recovery rose and concerns over Greece's debt problems eased.
But foreign investors continued to buy, with net buying totaling 97.2 billion won on the main bourse.
The market showed muted reactions to the country's strong first-quarter growth data on expectations that despite growth data, the central bank is unlikely to raise its key interest rate in the near future.