Value context and insight. lkm@koreatimes.co.kr
Korean currency gains on delayed Trump tariff expectations
A dealer passes by an electronic board on the trading floor of the dealing room at Hana Bank in Seoul, Tuesday. Yonhap
By Lee Kyung-min
The Korean currency opened at 1,437 won against the U.S. dollar, Tuesday, a gain of 14.7 won from the previous session, boosted by expectations of a less aggressive tariff policy from the new Donald Trump administration, market watchers said.
The month-to-date high is a significant stabilization from earlier this month when the won plunged to around 1,470 won, buffeted by the Dec. 3 martial law fiasco and the global reign of the strong dollar.
The development tempers concerns over a further sharp currency depreciation. This has been a major source of stress for the financial market over the past month, as evidenced by the Bank of Korea (BOK) holding the key rate steady on Jan. 16, despite the stagnant economy and anemic domestic demand.
Also advancing the cautious optimism is foreign exchange (FX) authorities' market stabilization measures and the National Pension Service (NPS) hedge instrument..
Many say the Korean currency will strengthen in the months to come, aided by the gradual restoration of political stability from the martial law debacle and the receding power of the global dollar.
Read More
“The second Trump administration is likely to pace itself with the blanket tariff policies,” Standard Chartered Bank Korea senior investment strategist Hong Dong-hee said.
The much-dreaded policy included tariffs of between 10 percent and 20 percent on all imported goods, with an additional 10 percent on China and 25 percent on Mexico and Canada.
However, a more measured approach is warranted by the dominant market view that the U.S. will bear the brunt of the short-sighted drive in the form of high inflation and the resulting elevated prices of imported goods.
“Overall, the revisited approach will reduce uncertainty and dampen the strength in the value of the U.S. currency,” Hong said.
Trump's inaction on tariffs on Day 1 of his term led to over a 1 percent decline in the Dollar Index, a measure of the value of the U.S. currency relative to a basket of foreign currencies. Included are the euro, Swiss franc, Japanese yen, Canadian dollar, British pound and Swedish krona.
The Korean currency plunged to 1,442 won per dollar from late Dec. 3 to the early hours the following day. It was the worst level since October 2022.
It plummeted to lower than 1,479 won on Dec. 31, amid the impeachment of then Prime Minister Han Duck-soo and escalating political turmoil.
Meanwhile, the NPS-mediated supply of at least $48.2 billion, or the 10 percent ceiling of the pension fund’s FX hedge allowance, was expected to result in up to 40 won in gains against the dollar. The BOK said the hedge instrument limited a further fall of the Korean currency by about 10 won.
The NPS hedge, where the pension fund sells part of its dollar-denominated assets through futures or forward contracts, was triggered by a greater-than-expected depreciation of the won. This helps reduce exchange rate volatility risks.
The Korean currency traded at 1,439.50 won, 3:30 p.m., gaining 12.2 won from the previous session.