Some global investment banks have forecast that the Korean currency will increase in value to triple digits against the U.S. dollar, as the won sits in its strongest position in five years.
U.S.-based Wells Fargo said in its report that the dollar, currently traded at between 1,020 won and 1,030 won, is projected to reach 990 won in the second half of the year. Bank of Tokyo-Mitsubishi UFJ predicted that the won could appreciate to 975 won by the end of 2014.
Many other IBs also share the view that the U.S. currency will further slide against the won, at least for several months.
They cite the dollar’s overall weakness against major currencies for their prediction of ongoing cheap greenback. The dollar lost ground in the exchange market as the U.S. monetary policymakers hinted at a reduced likehood of interest rate hikes in the near future.
The Korean won is also being touted in the market as a safe-investment asset among major emerging market currencies. Analysts stress that it is still undervalued, which is fanning its strong position.
According to Samsung Futures, the won has recently seen the sharpest rise against the dollar among 32 major currencies.
Over the past month, the won appreciated by 3.51 percent against the greenback, compared to the Japanese yen at 1.96 percent, British pound at 1.82 percent and Taiwanese dollar at 0.92 percent.
Korean policymakers maintain that they will not sit idly as the won’s value appreciates, citing its possible negative effect on the export-driven economy’s gross domestic product.
Senior government officials reportedly set 1,020 won and 1,000 won as the first and second resistance lines, respectively. These indicate that the country will work to prevent a triple-digit exchange rate era.
Some economists downplay the possibility of further appreciation of the local currency. A research fellow of the Korea Institute of Finance said that “the dollar will gain its value again when an interest rate hike is conducted in the U.S. in the third or fourth quarter.”
The dollar closed at 1,024.4 won on Monday, the same figure posted in the previous trading session despite policymakers’ verbal intervention.
The U.S. currency is posting the weakest position against the won in five years. It remained at the 1,060 won level in the first quarter, but slid to the 1,050 level in April, and further to the 1,020 won level in early May.
Economists say the issue is U.S. Federal Reserve Chair Janet Yellen’s implementation of a loose monetary policy. U.S. firms are currently performing worse than expected and the world’s largest economy is suffering due to a bigger-than-expected trade deficit.
By Kim Yon-se (firstname.lastname@example.org)