Won hits over 13-year low against dollar after Fed's rate hike
An electronic signboard at a Hana Bank dealing room in Seoul shows the Korean currency dipping below 1,400 mark against the U.S. dollar, Thursday. Yonhap
The Korean currency on Thursday sank below the 1,400 mark against the U.S. dollar for the first time in more than 13 years as the Federal Reserve delivered another sharp rate hike and signaled further large increases.
The Korean currency closed at 1,409.70 won per dollar, down 15.50 won from the previous session. The won dipped to as low as 1,413.40 against the greenback at one point.
The won had fallen through the 1,400 mark for the first time since March 20, 2009, when the local currency ended at 1,412.50 won against the greenback.
The won's slide came as the dollar rallied following the Fed's decision to raise its target interest rate by 75 basis points for a third straight time.
The Fed on Wednesday (U.S. time) hiked the federal funds rate to a range of 3-3.25 percent, the highest since 2008, and hinted at further large hikes, including another 75 basis point increase this year.
Fed Chair Jerome Powell voiced his resolution to contain inflation, saying that the Fed would "keep at it until the job is done."
The Fed's hawkish stance chilled market sentiment. Korea's key stock index fell 14.9 points, or 0.63 percent, to end at 2,332.31, with foreigners dumping a net 60 billion won (US$42.5 million) worth of local stocks.
Finance Minister Choo Kyung-ho issued a verbal warning, saying the government will take action to stem herd behavior in the foreign exchange market.
"By mobilizing all possible means, the government will sternly deal with (the herd behavior) in a decisive and swiftly manner, when needed," Choo told reporters after a meeting with the chief of the central bank and top financial regulators.
This undated file photo shows stacks of U.S. dollars. Yonhap
Korea's widening trade deficit also put downward pressure on the Korean won. The country's exports showed signs of weakening due to slowing global demand. The nation is poised to log a trade deficit for the sixth straight month in September for the first time in about 25 years.
The Korean won has weakened about 15 percent against the greenback so far this year. A weaker won could spark capital outflow and complicate the government's efforts to tame inflation.
Policymakers said there is no need to be panicked about the won's weakness as the latest fall has been mainly driven by the globally strong dollar and the country has maintained sound external positions.
But market experts said as the won sank below the psychologically important 1,400-won mark, currency volatility will likely increase.
"As the Fed will maintain its hawkish policy stance for the time being, the Korean currency could further weaken to touch 1,430-1,450 won per dollar," Suh Jung-hoon, an analyst at Hana Bank, said.
Experts raised the need for the opening of a currency swap line between Korea and the United States in a bid to help stabilize the foreign exchange market.
President Yoon Suk-yeol and his U.S. counterpart Joe Biden agreed to closely cooperate to implement liquidity facilities, if needed, when they briefly met in New York on Wednesday.
Seoul's presidential office said a currency swap deal could be included in such liquidity facilities.
Korea's $60 billion currency swap line with the U.S. expired at the end of last year. The Bank of Korea and the Fed signed the swap facility in March 2020 to ease market routs caused by the pandemic and had extended the deal three times. (Yonhap)