Korean currency surges on hope for Middle East de-escalation, WGBI inclusion

An electronic board at the dealing room of Hana Bank in Seoul displays the won-dollar exchange rate, the KOSPI and the Kosdaq, Wednesday. Yonhap

The Korean won rose sharply against the U.S. dollar Wednesday, as investors welcomed potential signs of an end to the monthlong war in the Middle East, along with Korea's inclusion in a major global bond index.

The won closed at 1,501.3 per dollar, up 28.8 won from the previous session's 1,530.1, snapping a five-day losing streak.

Tuesday's level was the lowest since March 9, 2009, when the won closed at 1,549 as the country was grappling with the global financial crisis.

The won's strengthening came after U.S. President Donald Trump said Tuesday (U.S. time) he expects U.S. forces to withdraw from Iran within "two or three weeks," adding, "All I have to do is leave Iran, and we'll be doing that very soon, and they'll come tumbling down."

Iranian President Masoud Pezeshkian also told European Council President António Costa that Tehran has the "necessary will" to end the war, provided its adversaries guarantee it will not reignite, according to foreign media reports.

Overnight, the dollar index, which measures the U.S. currency against six major peers, fell below the 100 level. U.S. stocks also rose sharply amid hopes for progress in negotiations between the U.S. and Iran.

Domestic and global foreign exchange and stock markets have seen heightened volatility as U.S.-Israeli strikes on Iran that began late last month escalated into a broader regional conflict, driving up global oil prices and stoking concerns about inflation and an economic slowdown.

Also boosting sentiment is optimism over Korea's inclusion in the World Government Bond Index (WGBI), managed by Britain-based index provider FTSE Russell.

Following its inclusion, foreign funds tracking the WGBI are expected to flow into the local market in phases over an eight-month period through November.

"The inclusion is expected to help stabilize the country's foreign exchange and financial markets," Finance Minister Koo Yun-cheol said. "Foreign financial institutions and bond dealers expect new inflows of around $50 billion to $60 billion following the inclusion, and inflows have in fact been confirmed this week."

The benchmark Korea Composite Stock Price Index (KOSPI) jumped 8.44 percent to 5,478.7 Wednesday, driven by sharp gains of big-cap tech shares.