Value context and insight. lkm@koreatimes.co.kr
Won strengthens on weaker US job market, delayed tapering concerns
An electric trading board shows the KOSPI lowering to 3,197.20 at a branch of Hana Bank, Monday. The benchmark index closed at 3,203.33, up 2.27 points, or 0.07 percent from the previous session. Yonhap
By Lee Kyung-min
'Korean currency to continue gain for the time being, unless impeded by sudden external shocks'
By Lee Kyung-min
The Korean won gained slightly against the U.S. dollar on the back of weaker-than-expected American jobs data, coupled with mitigated tapering risks by the U.S. Federal Reserve (Fed).
The currency hovered in the range of 1,155 won and 1,159 won as of mid-Monday, before ending at 1,1560.50 won, up from the previous session.
Whether or not the uptrend will be sustained will hinge on foreign investors' demand, the continuation of which will lead to the currency strengthening to a level higher than 1,150 won.
Also to be monitored is how the safe global reserve currency will fare against other volatile asset classes recently gaining traction, as indicated by a recovery in investors' risk appetite in taking on cryptocurrency. According to Coinmarket cap one bitcoin traded for $51,796.70, as of 3 p.m., Monday (KST), up 4.25 percent from 24 hours earlier. This was up 8 percent from seven days earlier. Ethereum traded for $3,932.68, up 2.10 percent from 24 hours before. It was a 24.5 percent increase from a week earlier.
“Job market data in the U.S. underperformed expectations by a wide margin, pushing down the value of the country's currency,” Korea Standard Chartered Bank's Korea investment strategist Hong Dong-hee said.
In August, the United States added 235,000 jobs, well below the market expectation. It was one of the weakest jobs statistics since the world's largest economy began recovering about a year ago.
In-person services propped by lower-paid workers were hit hard including hospitality industries such as restaurants, bars and hotels.
Fears of a delay in economic recovery fanned further, as the job data arrived shortly before the country's unemployment benefits for 7.5 million workers expired on Sept. 6.
“Weaker-than-expected employment data in the U.S. pushed down the value of the country's currency, a measure of a country's economic strength,” he added.
Also factored in was a delay in the Fed tapering, prompted by the weak labor market data ― a major determinant for the Fed to reconsider monetary tightening.
Ill-timed tightening can lead to an unwanted outcome in the market, since the policy reaches the market with a time lag of a couple of months for a full, across-the-board impact.
“The Fed will have no choice but to postpone the tapering until after the fallout of the disappointing job market data clears,” Seoul National University economist Lee In-ho said.
“The reduction in bond-buying will not be at the top of the Fed's list of policy tools, unless the job market recovers in the months to come.”
The recent sharp depreciation of the local currency in mid-August has normalized to a degree, sustained by easing fears of the Delta variant-triggered fourth wave of pandemic crashing the economy, according to Kim Yu-mi, a senior economist at Kiwoom Securities.
Kim said, “The Korean won is likely to gain, unless major external shocks hit the market. The currency will move near the 1,150 won level for the time being. The exchange rate will fall below the mark, if demand for the local currency increases from the foreign investors.”
Overseas investors continued to sell-off of a greater number of Samsung Electronics and SK hynix shares last month, sending the Korean won further down in value. But the selling-spree has largely eased, lifted by August export data by the trade ministry.
The steep drop in the share prices of the Korea-based top global chipmakers was sparked mostly by assessments made by the investment banking industry that predicted softening demand for their key products. But the fear of a slowdown in Korean chip exports dissipated somewhat, as evidenced by solid growth presented by the trade ministry data, she added.
The Korean won hit an 11-month low of 1,183.50 won, Aug. 20, weakened chiefly due to dollar-buying demand by foreign equity investors who left with the greenback after dumping Korean shares. The benchmark KOSPI fell to an intraday low of 3,049.03 the same day, eroded by foreigner traders' sell-off of chip shares.
The KOSPI ended at 3,203.33, Monday, up 2.27 points, or 0.07 percent from the previous session.