The dollar-to-won currency exchange rate came to 1,123.5 won in closing Monday, down 0.2 percent compared with the Friday session’s close. A lower exchange rate translates into a stronger local currency. This drop marked an end to the Korean won’s rally, which lasted three consecutive trading days ending Friday.
The Chinese yuan, which spearheaded the rally of Asian currencies last week, was also trading 0.4 percent lower against the greenback as of 4 p.m. Korean time.
Moreover, the recent US jobs data released on Friday indicated that the US added 250,000 jobs in October, while wage growth hit a nine-year high at 3.1 percent year-on-year. The country’s unemployment rate remained flat at 3.7 percent.
Lowered expectations for relief from the US-China trade war “put a lid on increased investor appetite for risk assets,” while robust US economic readings “contributed to a stronger US dollar,” Ahn Ye-ha, a fixed income analyst at Kiwoom Securities, wrote Monday.
Ahn added that ahead of major events this week in the US, including midterm elections and the Federal Open Market Committee meeting, another sharp rise in the value of the local currency is unlikely for the time being.
Last week, the local currency jumped against the greenback, hitting the five-week high on Friday. The Korean won strengthened 1.4 percent against the US dollar compared with Thursday, the largest gain in 22 months. Throughout the week, the Korean won rallied 1.7 percent against the dollar, the sharpest increase among currencies in all the Asian and South American nations.
The Korean won was “lifted by the risk rally,” wrote Alvin Tan, a fixed-income strategist at Societe Generale, which “shrug(ged) off the disappointing gross domestic product and industrial production data releases” in Korea. This came as a sharp drop in the US dollar-to-Chinese yuan exchange rate -- by 1.3 percent from Wednesday to Friday -- lifted the Asian currency complex on the promise of the US-China summit, Tan added.
Local analysts also noted that optimism about the fundamentals of the local currency, despite the recent upward trends, would be premature.
“The Korean won has strengthened sharply on eased financial market volatility recently, but money flow in emerging markets are still unstable, given the nations’ fundamental,” Park Jung-woo, an analyst at Korea Investment & Securities, wrote in a note to investors. “Korea’s exports (are) also expected to be (weak) by the year-end, so the Korean won is forecast to be weaker within a limited range.”
“A lackluster real economy in South Korea dampens investor appetite for the Korean won,” wrote Chung Mi-young, a fixed-income analyst at Samsung Securities. “It’s not a matter of finance, but it’s a matter of real economy.”
By Son Ji-hyoung