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By Yi Whan-woo
The Korean won has remained weak against the U.S. dollar for more than a month and a half, hovering at the significant 1,300 won per dollar barrier despite recent depreciation in the value of the dollar from its highs in 2022.
Analysts said Tuesday that the weakening Korean won is ascribable to sluggish exports, which have resulted in the longest losing streak in the trade balance in 25 years and an outflow of dollars.
They warned that the local currency could continue to lose ground against the dollar, noting the decline in outbound shipments is closely related to the slower-than-expected reopening of China.
"The exports are unlikely to improve unless demand from China and other countries recovers, meaning the won-dollar exchange may remain unstable for the time being," said Lee Sang-ho, head of the Korea Economic Research Institute's (KERI) economic policy team.
His comment came as the won closed at 1,324.9 against the dollar, Tuesday, weakening by 0.4 won from the previous session's close, Friday, and staying above 1,300 won for the 47th consecutive trading day since April 17.
The won's depreciation contrasts with its performance in February when it recovered to the 1,220 won level after plunging as low as below 1,400 won last year.
On the other hand, the dollar has been losing ground in general against six other major currencies, as evidenced in the U.S. Dollar Index (DXY), which is hovering around 104 as compared to its yearly high of 114.11 in 2022.
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| An electronic signboard at Hana Bank in Seoul shows the Korean currency closing at 1,324.9 won per dollar, Tuesday, weakening by 0.4 won from the previous close, Friday. Yonhap |
A won-dollar exchange rate of 1,300 has been perceived as a sign of major economic risk, considering it has occurred only three times in the past ― during the 1997-98 Asian financial crisis, the 2001-02 credit card crisis and the 2008-09 global financial crisis.
Shinhan Financial Investment analyst Kim Chan-hee thinks that the possibility of the won bouncing back is slim, pointing out that exports in the first 10 days of this month registered a double-digit decrease.
Such a decline comes amid a seven-month-long fall in outbound shipments as of April, driven mainly by lagging demand for semiconductors from China.
Accordingly, Korea's trade balance remained in the red for the 14th consecutive month as of April, marking the longest losing streak in 25 years.
This year's accumulated trade deficit has already amounted to nearly $30 billion as of early May, which accounts for 61.5 percent of the trade deficit posted in 2022.
Min Kyung-won, an analyst at Woori Bank, speculated that the ongoing U.S.-China trade row could further slow the anticipated spillover effect of China's economic recovery and that the won-dollar exchange rate may not rise to above 1,300 won this year.
"The government is urged to take the weakening won as a serious sign for the economy and bolster efforts to spur exports," Min said.
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