South Korea’s currency has begun to lose ground against the euro and the Japanese yen, as its slide against the U.S. dollar continues.
The Korean won held strong against the two currencies during the first half, amid uncertainty over Greece’s financial woes and Japan’s aggressive quantitative easing.
The euro, after trading at a 100-month low of 1,198.59 won on March 17, dipped further to 1,155.86 won on April 14.
While the euro usually ranged between 1,170 won and 1,260 won between January and June, it strengthened on the back of eased concerns over Greece from mid-July. It has continued to gain value to reach the strongest level so far this year and peak at 1,344.56 won as of Friday.
In 2011 and 2012, the won-yen exchange rate ranged between 1,300 won and 1,550 won per 100 yen. The Japanese currency traded at between 890 won and 935 won during the first half after falling below the 1,000 won mark in October 2014.
But the yen appears to have stopped its record slide in July, in the wake of the robust earnings by Japanese exporters and an increase in private consumption.
After breaking through the 950 mark in mid-August, it rose to a 10-month high and traded between 960 won and 970 won per 100 yen over the past few trading sessions.
More and more currency dealers predict that the rate will pass the 1,000 won mark later this year or in early 2016.
Many analysts share the view that Chinese monetary policymakers’ devaluation of the yuan has fueled the weakness of the won, citing the Korean economy’s dependence upon China.
The recently escalating geopolitical risks on the Korean Peninsula are expected to accelerate the weakening of the won.
The won has also weakened against other major currencies such as the British pound, Australian dollar and Hong Kong dollar in recent months.
The U.S. dollar has climbed most sharply. Amid worries over the Federal Reserve’s coming interest rate hike, the greenback has continued to gain at a rapid pace since early July to close at the 47-month high of 1,195 won on Aug. 21.
The dollar surged by about 18 percent over the past year. The won-dollar rate stayed between 1,010 won and 1,080 won in the third quarter of 2014.
“A batch of externally negative factors have hit the currency market, which include a U.S. rate hike, Chinese stocks’ tumble, the yuan’s depreciation and a plunge in oil prices,” said Samsung Futures research analyst Jeon Seung-ji.
Citing the added factor of the inter-Korean tension, she predicted the local financial market could undergo greater volatility.
While local policymakers are believed to tolerate a weak currency to revive exports, the potential for a massive capital outflow sparked by the falling value of won-denominated assets, including stocks, is rising.
Some market insiders raise the possibility that the Korean monetary authorities may face a backlash from export-driven competitors for their allegedly lukewarm attitude toward the won’s slide.
By Kim Yon-se (email@example.com