Posted on 03/17/2008 2:47:21 AM PDT by TigerLikesRooster
(3rd LD) Korean won plunges to 27-month low to greenback
SEOUL, March 17 (Yonhap) -- The South Korean currency on Monday tumbled to a 27-month low against the U.S. dollar amid a global credit crunch, raising concerns over a buildup in inflationary pressures.
The local currency closed at 1,029.20 won to the U.S. dollar, down 31.9 won from Friday's close and the weakest close since Dec. 12, 2005 when it finished at 1,033.7 won to the greenback. The won's daily loss was the biggest since Aug. 6 1998 when the local currency fell by 70 won to the dollar.
The South Korean currency closed down 66.27 won from the previous session at 1,061.58 won to 100 yen, the lowest close since Oct. 25, 2004 when it ended at 1,062.54 won. The greenback serves as the benchmark for the won-yen cross rate.
"The won's plunge against the U.S. dollar came as investors showed sensitive reactions to a deepening global credit squeeze. Market players also delayed selling dollar holdings on speculations that the won's losing streak would continue," said Kim Jae-eun, an economist at Hana Daetoo Securities Co.
Dealers said the won fell sharply against the U.S. dollar as investors still see the greenback as a safer asset although the U.S. economy is sliding into a recession.
Offshore investors snapped up the greenback, staying away from riskier assets after JP Morgan Chase & Co. said it would buy troubled Bear Stearns at a deep discount of US$2 per share. The U.S. Federal Reserve's move to cut the rate on direct loans to commercial lenders also failed to calm panicky investors, dealers said.
"A possible rate cut by the Fed on March 18 is expected to have a limited impact on the currency market," Kim added.
A weaker won has also been driven by South Korea's widening current account deficit and a selling spree by foreign investors, they said. South Korea's current account deficit widened to an 11-year high in January as import bills increased amid soaring oil prices.
Foreigners dumped local shares worth 641.8 billion won ($624.1 million) in line with the local currency's 12-session losing streak. The benchmark stock index fell 1.61 percent to 1,574.44.
The won is expected to be under pressure down the road as foreigners repatriate dividends in March and April to their home countries, dealers said.
Analysts said a weaker won is likely to exert upward pressure on South Korea's already high consumer inflation as it makes imports more expensive.
"A weaker won could help improve exporters' earnings by making their products cheaper in overseas markets, but it could also have a negative effect on Asia's fourth-largest economy as it puts upward pressure on inflation, which could sap consumer spending," said Lee Sang-jae, a senior economist at Hyundai Securities Co.
South Korea's consumer inflation rate reached 3.6 percent in February, breaching the BOK's target range of 2.5 to 3.5 percent for the third month in a row.
On March 7, the BOK set its new benchmark rate, the 7-day repurchase agreement rate, at 5 percent for March as rising inflationary pressures outweigh growing concerns over a slowdown of the economy.
BOK Gov. Lee Seong-tae warned of rising inflation after a rate-setting meeting, saying that inflation for the full year could be higher than the bank's previous forecast. The central bank forecast consumer prices to grow 3.3 percent this year, up from a 2.5 percent gain last year. "Rising inflation woes would lead the central bank to stand pat on the interest rate at the next review," said Kim at Hana Daetoo Securities.
Ahead of the market's close, South Korea's central bank, the Bank of Korea, made a verbal intervention regarding the foreign exchange market.
"The pace of the won's fall versus the greenback is somewhat fast," said Ahn Byung-chan, head of the central bank's international bureau. "The foreign exchange authorities are concerned about the won's steep depreciation and we will closely monitor the situation." Meanwhile, South Korea's Finance Ministry stayed tight-lipped on Monday regarding the won's steep depreciation against the U.S. dollar and plunges in the local bourse.
"No comment," said Kim Kyu-ok, a spokesperson for the Ministry of Strategy and Finance, during a weekly press conference.
Economists said the won's weakness would persist for the time being until a global credit crunch shows signs of abatement. Some said the local currency is likely to hit as low as 1,050 won against the greenback this year if the foreign exchange authorities refuse to intervene to curb the won's tumble.
This misguided policy could wreck its economy. We have morons in SK government.
Ping!
yikes
"Dealers said the won fell sharply against the U.S. dollar as investors still see the greenback as a safer asset. . ."
yitbos
Does this explain why Korean car companies were doing better than car companies in other countries last night?
“Honey, round up the kids—this year the family vacation is in South Korea!”
"However, carmakers gained on hopes that a softer won will boost their competitiveness in overseas markets. Hyundai Motor advanced 1.7% and Kia Motors jumped 4.1%..""
“”Dealers said the won fell sharply against the U.S. dollar as investors still see the greenback as a safer asset. . .””
Keyword is safer, and doesn’t for a second mean that folks are moving into dollars from won - in fact, I am pretty sure this is just a journalist fabricating a viewpoint in order to write a US-oriented dollar-won english story. The dollar is the worst-performing of the following - Euro, Pound, Yen, SFranc, and (of course) gold.
This is true.
How does the greenback stand up to the ChiCom renmibi, Hong Kong dollar, Singapore dollar, Saudi riyal, Quatar riyal, United Arab Emitates dirham? Those are some pretty heavy hitters in finance.
yitbos
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