The South Korean won rallied to its strongest level in nearly six years on Monday as rate cuts by the European Central Bank were expected to propel more foreign capital inflows into Asia’s fourth-largest economy, lending further support to the local currency, analysts said.
The local currency closed at 1,016.20 against the greenback, up 4.3 won from the previous session’s close. The won hit an intra-day high of 1,016.00 to the dollar, the strongest level since Aug. 6, 2008, when the comparable figure was 1,015.90, and easily exceeding this year‘s high of 1,017.10 on May 30.
On Thursday, the ECB cut its deposit rate to minus 0.1 percent from zero and slashed its benchmark rate to 0.15 percent from 0.25 percent in a bid to bolster the world’s largest single economic bloc, vowing to take additional measures if needed.
“The South Korean economy’s fundamentals are sound compared to other emerging economies, and the rate cuts by the ECB will prompt further capital inflows into the South Korean economy, which will provide further support to the won,” said Kim Jong-soo, an analyst at Taurus Investment & Securities.
Backed by easing policies by major advanced economies and the Korean economy’s sound economic fundamentals, the local currency has already gained some 6 percent.
In the local stock market, foreign investors have scooped up some 3 trillion won worth of local shares since May 13, helping the local currency trade at the 1,020-won level for the past few weeks.
But analysts said the Korean won will not exceed the psychologically important 1,000-won level as local authorities are firmly curbing the won‘s sharp ascent, which could wreak havoc on exporters.
Also, the U.S. economy is maintaining its recovery pace, which will strengthen the dollar, they said.
“The currency authorities will fine-tune the exchange rate in order to curb the won’s sharp rise,” Ma Ju-ok, an analyst at Kiwoom Securities, said, forecasting the won-dollar rate will range from 1,015 to 1,030 this week.
Meanwhile, the Bank of Korea, South Korea‘s central bank, is expected to hold its key rate steady at 2.5 percent for the 13th consecutive month at the upcoming meeting this week, as it made an assessment that the local economy is maintaining its uptrend, although uncertainties related to domestic demand have increased from the recent ferry disaster that led to more than 300 people being killed or missing. (Yonhap)