Yahoo Finance Fed Puts South Korean Won’s Line in the Sand Firmly Back in Play
(Bloomberg) -- South Korea is likely to draw a line in the sand for the won at around 1,400 per dollar, as the currency approaches that key level again ahead of the Federal Reserve’s policy decision.
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The currency has declined 0.9% in the last two sessions, and a more hawkish-than-expected Fed this week may lead to further weakness. That may push authorities into action as they did in April when the won touched the psychological level, according to analysts.
The won’s sustainable break past 1,382 per dollar could trigger some verbal warnings, while the currency’s drop past 1,400 will “likely to be defended,” said Wee Khoon Chong, senior market strategist for Asia Pacific at BNY Mellon in Hong Kong. “All eyes are on the FOMC this week.”
The South Korean won has weakened around 6.5% this year as a resurgent dollar wreaked havoc in foreign-exchange markets. While the won’s weakness is often regarded as helping export competitiveness, a rapid depreciation heightens concern over capital outflows and financial market instability — an outcome officials in Seoul would want to avoid at all costs.
READ: Jawboning the Won: Decoding Comments by Korean Policymakers
Easing economic momentum in China, Korea’s biggest trading partner, has also weighed on the currency. The won fell 0.2% to 1378.30 per dollar on Tuesday, to remain one of Asia’s worst-performing currencies next to the yen and baht.
Korean authorities have said that they don’t target a specific level for the won in terms of what they call “smoothing operations” in the market to ease volatility.
“The won could weaken past 1,400 per dollar this week if the Fed signals less rate cuts in this year and the next,” said Moon Junghiu, economist at KB Kookmin Bank. The currency has already declined below 1,350 per dollar, and could technically weaken to as low as 1,450 per dollar,” he added.
The authorities will step in to protect the 1,400 mark as they did in April and in 2022, Moon said.
--With assistance from David Finnerty.
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