Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Won-dollar exchange rate faces upward pressure from FOMC, Evergrande
Dealers at Hana Bank work in a trading room at its headquarters in Seoul, Friday. Yonhap
By Lee Min-hyung
By Lee Min-hyung
The Korean won is expected to continue weakening against the U.S. dollar, as concerns over Evergrande and possible talk of tapering at the next Federal Open Market Committee (FOMC) meeting could prompt investors to flock to safer assets.
Currency dealers are paying keen attention to what will be announced and discussed during the planned two-day FOMC meeting ― which started on Sept. 21 ― as the regular session is expected to send a more clear signal regarding the timeline of when the Fed will start to reduce asset purchases.
It remains unclear if the Fed will specify the detailed timing of the tapering during the upcoming meeting. But the prevailing market view is that an official announcement concerning the tapering will be made in November.
Regardless of the tapering timeline, the won is expected to weaken against the U.S. dollar in the foreseeable future, as the shift in the Fed's monetary policy heightens uncertainties for investors.
The Korean currency weakened sharply to 1,184 won per dollar as of Friday, up 0.89 percent from the previous session, according to data from Hana Bank.
Starting this month, the won has been weakening sharply against the dollar, as fears of the U.S. tapering prompted foreign investors to dump Korean stocks. Foreign investors sold 7.81 trillion won worth of Korean stocks in August alone.
Another factor that will add pressure on the exchange rate here is China's Evergrande default risk.
With a series of reports making global headlines over the property company being on the verge of collapse, global financial markets have shown signs of instability this week, as demonstrated by falls in major U.S. stock indices.
For now, chances appear slim that the China risk will pose a long-lasting impact on the market. But the uncertainty is pushing investors to prefer the dollar over currencies from emerging economies.
“International financial markets suffered stock price falls caused by uncertainties from the China risk and U.S. corporate tax hikes last week,” a recent report by the Bank of Korea said. “The value of the U.S. dollar is strengthening based on (investors') concerns over the FOMC meeting in September.”
According to data from the nation's top four banks ― such as KB, Shinhan, Hana and Woori ― the combined balance of their dollar savings accounts reached $49.49 billion as of the end of August, down 10 percent from the end of May.
The decline in these dollar savings accounts was due to a selling spree of the dollar by retail and institutional investors in recent months, in order to profit from the weakening won, due to the fact that one dollar is now worth more won than it was a few months earlier.