© Bloomberg. An employee arranges genuine bundles of South Korean 50,000 won banknotes for a photograph at the Counterfeit Notes Response Center of KEB Hana Bank in Seoul, South Korea, on Monday, Aug. 14, 2017. The won advanced for the first day in four as top U.S. national security officials sought to damp down talk of am imminent war with North Korea following days of heightened rhetoric. Photographer: SeongJoon Cho/Bloomberg
(Bloomberg) — Are South Korean authorities drawing a line in the sand for the won?
As the currency dropped around 2% this month toward 1,200 against the dollar, the Ministry of Finance and the Bank of Korea have jawboned the market on at least eight occasions. The rhetoric may have helped cap the won’s losses but selling still persists in the absence of more overt intervention by the authorities.
“The level everyone is watching now is 1,200,” said Kim Doo-un, an economist at KB Securities Co. in Seoul. Given the dollar’s strength, “the authorities probably know that going into the market at this time is like pouring water into a bottomless pit. Thus, such market operations have lost much of their influence compared to the past.”
Asia’s worst-performing currency this year has been buffeted by a sharp slowdown in chip exports, while worsening U.S.-China trade tensions in May have hurt Korea’s economic outlook. Yields on the nation’s three-year bonds are below the central bank’s policy rate of 1.75% as speculation mounts that it will have to ease.
The tone from the authorities has also gotten sharper. The first two warnings in May were generic comments about “closely monitoring” currency markets. They then progressed to statements that steps would be taken if “herd behavior” is seen. On Monday, a finance ministry official warned against massive one-sided trades at a certain time of the day affecting the market.
The won gained 0.1% to 1,192.55 versus the dollar at 11:21 a.m. in Seoul on Tuesday, and is down 6.4% for the year. If the currency weakens past 1,200, this is expected to draw a stronger response from the authorities, said Kim.
“If the won’s moves are excessively big compared to its peers, that is when to expect a stronger reaction by the authorities,” said Kim.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Latest posts by investing.com (see all)
- Forex – Australian Dollar Steady After RBA Decision - June 4, 2019
- Yuan Watchers Say 7 Is No Longer a Sticking Point for China - June 4, 2019
- Fresh Losses Coming for Australian Dollar, Strategists Say - June 4, 2019