Won to regain ground against dollar until tapering steps are taken: economists

A foreign exchange dealer at Hana Bank works while listening to news on the U.S. Federal Open Market Committee's rate decision, at the lender's headquarters in Seoul, Thursday. Yonhap

By Lee Min-hyung

The local currency is expected to strengthen against the U.S. dollar by the end of 2021 despite the recent surge in the valuation of the greenback, as the Federal Reserve is unlikely to take specific tapering steps until that time, economists here said Friday.

The forecast came after the won-dollar exchange rate soared to a new high this month of 1,130 won per dollar, Thursday. The appreciation of the dollar reflected the Fed's hawkish attitude toward a sooner-than-expected tightening of its monetary policy.

But market watchers said the surge will last only until the Fed takes specific and concrete steps to taper its quantitative easing stance.

“The dollar turned bullish on Thursday soon after the Fed's rather hawkish announcement, but it will not keep gaining ground against the won throughout the year, and the exchange market will soon stabilize on the recent extension of the Korea-U.S. currency swap deal,” Sejong University economist Kim Dae-jong said.

After hitting a one-day high of 1,134.5 won, Thursday, the won-dollar exchange rate is still maintaining its bullish run hovering around the 1,130-won level as of Friday.

“Even if the dollar is expected to strengthen against the Korean currency over the longer term until 2023 when the Fed will increase its key rate, the exchange rate is unlikely to drastically increase further until the end of this year,” he said.

The swap deal extension will likely generate a buffer effect in curbing a possible surge in the exchange rate until the agreement is extended at the end of the year, according to the economist.

Hi Investment & Securities economist Park Sang-hyun also said global capital was still in favor of risky assets despite looming fears of a sooner-than-expected tapering.

“The global capital flow is still in a phase of preferring risky assets, so chances are that the U.S. dollar will remain weak,” he said.