Authorities' verbal interventions fail to curb won's slide

A dealer walks by a screen showing the won/dollar rate closing at 1,345.5 won per dollar and the benchmark index KOSPI closing at 2.435.34 at Hana Bank headquarters in Seoul, Tuesday. Yonhap

Won closes at 1,345.5 per dollar, lowest level since financial crisis in 2009

By Lee Min-hyung

Despite financial authorities' verbal interventions, the Korean won continued its losing streak against the U.S. dollar Tuesday, closing at 1,345.5 won per dollar, down 5.7 won from a day earlier.

It was the weakest level seen since April 29, 2009, when the won closed at 1,357.5 won in the midst of the 2008-2009 financial crisis. Tuesday's interventions came as the won-dollar exchange rate soared to a new high of 1,345 won per dollar on Tuesday morning.

In response, President Yoon Suk-yeol and financial authorities have called for tight risk management in the local foreign exchange market.

“We will keep managing risks by holding emergency economic meetings, so the strengthening dollar and the weakening won do not cast any negative impact on the market here,” Yoon said. “Even if the economy does not have any serious problems on financial soundness, the rising won-dollar exchange rate may worsen the international balance of payments and pose a threat to the market here. We will be well prepared so the public does not feel uneasy.”

The Ministry of Economy and Finance also verbally intervened in the market by releasing a message that it would step up monitoring of any speculative factors in the recent surge of the exchange rate.

“We will thoroughly monitor whether there have been any speculative factors in the rising won-dollar exchange rate,” an official from the ministry said. This was the first time since June 13 that a financial authority has issued a verbal intervention.

The exchange rate dropped below 1,340 won soon after the verbal interventions from the president and financial authorities. But the effects did not last long, with the Korean won ending up losing more ground against the dollar in the afternoon.

The benchmark KOSPI also closed down 1.1 percent to 2,435.34 points on the same day.

Market analysts expected the dollar to extend its strong rally following a hawkish gesture from the U.S. Federal Reserve.

They estimate the government's verbal interventions will have a limited effect on deterring the local currency's slide.

“The authorities won't have much room to control the won's weakening trend because it is being caused by a major flow in the foreign exchange market, resulting from the strengthening of the dollar,” Shinhan Bank economist Paik Seok-hyun said.

“The dollar will stage a strong rally in the latter half of this year due to the Fed's monetary policy stance,” Hana Securities analyst Chun Kyu-yeon said. The analyst expected the won-dollar rate could reach as high as 1,365 won once it breaches 1,350 won.