Korea's currency is expected to continue to strengthen against the U.S. dollar next year, but its pace will likely be slower than this year largely due to monetary easing by major economies, analysts said Friday.
The Korean won has appreciated 7.86 percent to the U.S. dollar so far this year, ending at 1,070.60 won on Friday, up 1.6 won from Thursday's close.
The won got off to a weak start against the U.S. dollar in the first half of this year, then fell even further to a yearly low of 1,185 won in May after Greece almost dropped out of the eurozone nations amid its worsening debt troubles.
But as economic powers -- the U.S., China and Japan -- began to pour liquidity in a bid to boost growth by inducing weaker currencies of their own, the Korean won began to sharply rise during the second half, analysts said.
The European Central Bank in September enforced a short-term debt purchase program without a limit, followed by the U.S. Federal Reserve announcing the third quantitative easing (QE3). Japan soon after joined the line with an increased asset purchase plan.
The spate of monetary easing by the three major economies, prompted the local currency to sharply increase to the 1,080 won range to the dollar as of Dec. 10.
Analysts forecast the won's strength against the greenback to continue for some time next year, gradually appreciating to the low to mid-1,000 level.
Twelve global investment banks have predicted the local currency to gain as much as 1,048 won against the greenback in the third quarter of 2013. Korean futures companies expected the South Korean unit will likely rise to 1,041 won in the last quarter.
"A strong won is inevitable since the global economy is expected to recover modestly, with China getting back on the track with a steady growth," said Cho Jae-sung a foreign exchange analyst at Shinhan Bank.
But many analysts agreed with that the pace of the won's rise will be capped. "A possible contraction in the current account surplus stemming from a worsening service balance may put a lid on the won's rising pace," Byun Ji-young at Woori Futures Co. said.
They also pointed out that the weakening yen will be an important factor in the foreign exchange market next year. The new Japanese government, led by Abe Shinzo, pledged to make the yen, currently traded at 85 yen per dollar, depreciate to 100 yen through monetary easing.
A weaker yen is considered a downside factor for Korean exporting firms since it hurts the price competitiveness of their exports in the global market.
"There's still room for a further fall in the yen currency against the won, as much as to 1,170 won per 100 yen," Byun said.
The Korean won gained to 1,240 won per 100 yen on Thursday, the highest level since May 2010. (Yonhap)