South Korea intervenes to prop up Won

The Financial Times ^ | 3/3/2009 | Song Jung-a in Seoul and John Burton in Singapore

[bruinbirdman]

The South Korean won on Tuesday rebounded from the weakest level in 11 years, helped by suspected intervention by the foreign exchange authorities.

The won has lost about 18 per cent of its value against the dollar this year to become the worst-performing major currency in Asia amid growing concerns about the country’s debt-financing ability.

The Korean currency fell as much as 1.5 per cent on Tuesday morning as the stock market fell below the 1,000 mark. But it rebounded 1.2 per cent to close at 1,552.40 per dollar, ending a three-day losing streak. Traders say Won1,600 appears to be the dollar’s short-term peak.

Traders said the government repeated its intervention after the finance minister warned against currency speculation. “[Authorities] are resolutely watching the foreign exchange market,” finance minister, Yoon Jeung-hyun, told reporters. “[The dollar/won] will not continue to go in one direction forever.”

Traders suspect that the authorities sold between $500m and $1bn in the market after selling more than $1bn on Monday to prop up the flagging currency.

Government officials believe the foreign exchange market has been driven by sentiment, rather than economic fundamentals, with investors unsettled by AIG’s huge losses, Citigroup’s nationalisation, and financial unrest in Eastern Europe.

Kim Ik-joo, director general in charge of currency and international affairs at the finance ministry, said this week that the country would do its best to stabilise the foreign exchange market. The Bank of Korea directly provided $3bn to local banks in 84-day swap agreements.

The continued intervention reduced the country’s foreign exchange reserves, the world’s sixth-largest, from $201.7bn in January to $201.5bn at the end of February.

However, analysts said the government needed to dispel growing concerns about the country’s dollar funding shortages and high external debt. South Korea’s short-term external debts stood at $194bn at the end of 2008, just covered by its international reserves.

“The won’s weakness stems from external factors rather than domestic problems. So the won would remain under pressure so long as global financial unrest continued,” said Lee Sang-jae, economist at Hyundai Securities. “Government intervention could slow the pace of the won’s slide, but can’t reverse the trend.”

There was also speculation in Kuala Lumpur that the Malaysian central bank had intervened to shore up the ringgit after Zeti Akhtar Aziz, the governor, said it was important that the foreign exchange market ”remains orderly”.

The ringgit rallied against the US dollar to 3.7075 from 3.7260 on Monday. But analysts said the ringgit’s move was in line with other regional currencies and might reflect traders taking profits from the US dollar’s recent gains.

[Jay Howard Smith]

I can’t believe it ...... Everything here is 40% off for me compared to a year or so ago ... !

[bruinbirdman]

Prices on stuff in South Korea are 40 cheaper?

yitbos

[Jay Howard Smith]

When I got here in 2004 the exchange rate was 1150 to a dollar. By 2007 it drifted down to 900 per $ ...... Now it’s 1550 and rising.

[bruinbirdman]

Last March a buck bought 950 WON. Today it buys 1552. Retired military paid in greenbacks? Its almost 67% in a year, eh.

yitbos

[Moltke]

The won has lost about 18 per cent...

So why do they call it the 'won'?