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By Yi Whan-woo
The Korean currency may weaken to as low as 1,350 won against the U.S dollar in the most extreme case, analysts said Friday, after the U.S. Federal Reserve stated it is committed to more hawkish interest rate hikes to tame inflation.
The Korean won opened at 1,326 per dollar on Friday, falling by 4.5 won from Thursday's close when it breached the 1,320 level again for the first time in a month.
It sank to 1,326.9 per dollar during intraday trading, marking the lowest level in more than 13 years, before closing at 1,325.9.
The won mainly hovered between 1,300 and mid-1,310 levels for the past two months, after it dipped below 1,300 for the first time in nearly 13 years on June 23 due to increased external economic risks.
The volatility in the won-dollar exchange rate, Friday, came after the Fed's minutes of its latest rate-setting meeting in July were released.
Back then, it carried out a giant step ― a rare 75 basis point increase in policy rate ― for the second consecutive month to control inflation.
The minutes then showed the U.S. central bank officials saw "little evidence" during their meeting that U.S. inflation pressures were easing, and accordingly, showed commitment to increase the benchmark interest rate as high as necessary to control prices.
"The Fed's hawkish stance has been within market expectation and it is somewhat surprising that the won-dollar exchange rate is still affected by such stance," said Joo Won, deputy director of the Hyundai Research Institute. "Taking this into account, I would say the Korean currency is open to a steeper fall against the greenback, possibly to 1,350 won."
Seo Jeong-hun, a senior researcher at Hana Bank, speculated that the Fed's move to tighten monetary policy may affect investor sentiment concerning reversal in benchmark interest rates between Korea and the U.S.
The U.S. currently leads Korea by a maximum 0.25 percentage points in terms of policy rate, and according to Seo, the Fed's minutes can "increase fears over a further depreciation of the Korean won and subsequent outflow of foreign capital in search of safe haven assets."
Along with the Fed's rate hike, a weakening won is also attributed to the prolonged war in Ukraine, the ongoing energy crunch and bottlenecks in supply chains.
Regarding the Friday's trading session, Hana Bank economist believed an agreement between the U.S. and Taiwan for trade talks darkened prospect on China's economy in the midst of a trade war with the U.S.
"Investors possibly found increasing need for safe haven assets," he said.
