By Yoon Ja-young
The Korean won is strengthening following S&P’s upgrade of the country’s sovereign rating.
The won closed at 1,095.4 won per dollar, Wednesday, down 10.7 won from the previous day. It is the strongest since May 22 2015 when it closed at 1,090.1 won. The Korean currency started trading at 1,103 won per dollar, but the rate fell below the psychologically meaningful 1,100 won in the morning session.
Analysts attributed it to the upgrade of Korea’s sovereign rating. Global credit rating agency S&P increased Korea’s sovereign rating by one notch to a record-high AA from AA-, Monday, the highest ever.
Despite the increasing geopolitical tension, the agency rated Korea higher than China and Japan.
The upgrade is expected to accelerate the inflow of foreign funds, further strengthening the Korean currency.
Foreign investors have already bought 4.2 trillion won worth of stocks in the Seoul bourse during the past month. The KOSPI surpassed 2,040 points Tuesday, on the inflow of foreign funds and good performances of the country’s leading conglomerates.
Meanwhile, the dollar has been relatively weakened recently due to U.S. economic indices that fell short of expectations. The United States saw GDP growth of only 1.2 percent in the second quarter, far below the 2.6 percent expected by the market. The market had been expecting a U.S. rate hike in September, but such expectation is losing momentum due to the sluggish economy.
Despite an inflow of foreign funds, some analysts estimate that further strengthening of Korean won is not very likely. “On top of the increasing global liquidity boosting major bourses, Korea is seeing more foreign funds entering due to the credit rating hike. However, on top of the concern over possible intervention by the government, there remain events such as the U.S. dollar gaining strength again and the election in the United States. They will likely hinder a further decrease of the won/dollar rate,” said an analyst at Samsung Futures.