Investors bet on dollar's long-term strength, despite won's recent gain

US dollar bills at Hana Bank in Seoul, Tuesday. Yonhap

Kim So-young, a 35-year-old Seoul resident, said she decided to convert some of her savings into U.S. dollars.

“I’ve been watching the won’s value relative to the U.S. dollar closely for weeks,” she said, adding that she saw an opportunity when the won gained briefly at the end of last month, following a government intervention.

“I decided to buy U.S. dollars before the won weakens again. I think the Korean currency is likely to lose ground in the coming months, earning me money. Many could say it’s speculation, but I think this is a sound investment choice in light of market volatility," Kim said.

She said she knew it was right the right move after watching a news report about a Hana Bank branch in Gangnam, southern Seoul, that ran out of $100 bills on Dec. 24. The branch made headlines after it posted a notice informing customers that U.S. currency was unavailable.

“Many, like me, must have believed that the strong demand for dollars would continue and that any gain in the Korean won would be short-lived," she said.

She is among many investors putting their holdings of the global reserve currency, despite the won’s recent gains.

Data from the country’s top five banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — shows their combined dollar deposits came to $67.47 billion as of Tuesday, up more than 6 percent from just eight days earlier.

The increase followed a period of government intervention in the currency market, creating tax incentives for stock investors who convert their holdings from U.S. to Korean investments late last month, pushing the Korean won to gain significantly after almost hitting record lows near 1,490 won against the U.S. dollar.

The local currency strengthened by over 50 won to the 1,420 won level late last month. But the won has weakened again over the past week, approaching 1,450 won against the dollar.

Market watchers say the trend reflects both speculation and genuine demand from importers and overseas investors.

“The won could weaken back to the 1,450 won level in the near term, driven by strong U.S. economic data and bargain buying by investors,” an industry official said.