Value context and insight. lkm@koreatimes.co.kr
Will Korean won continue to strengthen against dollar amid growing volatility?
Bank of Korea Gov. Rhee Chang-yong speaks during a meeting with reporters in Milan, Italy, Monday (local time). Courtesy of BOK
By Lee Kyung-min
Local currency rises to six-month high of 1,380 won per dollar at market opening, Wednesday
The Korean currency won has been gaining ground against the U.S. dollar in recent days, buoyed by broad appreciation of Asian currencies on the expectations of eased U.S.-China tensions, market watchers said Wednesday.
The Korean currency opened at 1,380 per dollar, 25.3 won stronger than the previous session.
The sharp appreciation came six months after former President Yoon Suk Yeol's Dec. 3 martial law declaration, when the won plunged to nearly 1,500 won against the dollar.
Analysts say the Korean currency is expected to gain gradually, despite volatility from U.S. President Donald Trump’s tariff threats.
Bank of Korea (BOK) Gov. Rhee Chang-yong said it is “too early to tell whether the won's strength will continue,” and it is “unclear whether the U.S. prefers a strong or weak dollar.” He made the comments in Milan, Italy, Monday (local time), during an Asian Development Bank meeting.
According to foreign exchange market data, the won appreciated to 1,379.7 won against the dollar in the morning sessions of Wednesday. The won ended trading at 1,398 won, gaining 7.3 won from the previous session.
The won's strengthening has continued since April 29.
Korea Investment & Securities analyst Moo Da-woon said most Asian currencies are appreciating, as illustrated by the Taiwan dollar surging nearly 10 percent, as well as the overall strength of Chinese and Japanese currencies.
“The Taiwanese currency soaring over two sessions, the steepest gain in 30 years, led to increased hedging demand for the won as a proxy currency,” he said.
The won functions as a proxy currency for the Taiwanese currency, due to the two economies' similar export-reliant structures and key industries such as chipmaking and electronics.
Rhee said exchange rate volatility will continue and is hard to forecast.
Still, he noted that the won's recent strengthening is emerging as a key monetary policy consideration, just as much as weakening.
This is because Korea’s foreign exchange market is “thin,” defined by relatively low trading volume.
The U.S. Treasury market, for context, can be just as volatile, but its large trading volume ensures that it does not disrupt overall market functioning.
“In Korea’s market, the number of participants are far fewer, driving short-term swings in currency values,” Rhee said. “The swings will accelerate once the market participants believe the BOK is not concerned about currency movements.”