stronger

Dec. 28 (Asia Today) — South Korea’s won strengthened sharply last week after market-stabilization steps by authorities and currency-hedging moves by the National Pension Service, but the currency’s annual average exchange rate still posted its highest level since the financial crisis, keeping investors on edge.

In Seoul trading, the won closed at 1,440.3 per U.S. dollar at 3:30 p.m. Friday, its lowest level in about six weeks since Nov. 4, when it ended at 1,437.9.

The exchange rate had neared this year’s peak earlier last week, briefly moving past the 1,480 level. It then fell more than 30 won (about 2 cents) per dollar on Wednesday after foreign exchange authorities announced supply-and-demand measures along with an unusually pointed verbal warning to the market. On Friday, reports that the National Pension Service had carried out strategic currency hedging pushed the exchange rate into the 1,420 range during the session.

After the drop, the year-end closing rate set to be finalized Tuesday is now likely to end below last year’s 1,472.5 per dollar, a benchmark used by companies and financial institutions to value foreign-currency liabilities on financial statements.

Seo Jeong-hoon, a senior research fellow at Hana Bank, said a high year-end exchange rate could hurt the credit profile of firms and financial institutions with large foreign-currency debts, potentially weighing on corporate lending and investment next year.

Even so, volatility concerns are expected to persist as the exchange rate remains elevated by historical standards. Through Friday, the average exchange rate this year based on weekly closing prices was 1,421.9 per dollar, above the 1998 average during the foreign exchange crisis of 1,394.9, data from the Seoul foreign exchange market showed.

Market talk has increasingly described the weak won as a “new normal.” Major global investment banks have forecast the won-dollar exchange rate will average between 1,420 and 1,440 next year. Three-month forecasts from 12 investment banks, including Standard Chartered and Nomura, averaged 1,440, while six-month forecasts averaged 1,426, the report said.

The International Monetary Fund last year estimated the appropriate won-dollar exchange rate at around 1,330, suggesting those forecasts imply the won would remain weaker than its estimated fair value next year.

Moon Jeong-hee, chief economist at KB Kookmin Bank, said an annual average exchange rate in the 1,420 range is “excessively high” relative to South Korea’s economic fundamentals. If it becomes entrenched, she said, expectations of a structurally weak won could take hold and further dampen domestic investment.

— Reported by Asia Today; translated by UPI

© Asia Today. Unauthorized reproduction or redistribution prohibited.