Record $22.5b foreign exchange sales in fourth quarter underscore pressure on won
South Korea’s foreign exchange authorities on Tuesday signaled readiness to step into currency markets if volatility intensifies, after the won slid to its weakest level since the global financial crisis.
“Authorities would act if market sentiment becomes excessively one-sided or if the won diverges sharply from other currencies,” said Yoon Kyoung-soo, director general of the International Department at the Bank of Korea, in what amounts to verbal intervention.
The remarks came after the won weakened past the 1,530 level, its lowest since March 2009. The currency closed at 1,530.1 per dollar and briefly fell to as low as 1,536.9 during trading.
Yoon said authorities are closely monitoring supply-demand conditions in the market, particularly foreign investors’ stock outflows, which have added pressure on the currency.
Foreign investors have been major net sellers, offloading 3.83 trillion won ($2.5 billion) worth of shares on Tuesday alone. They have net sold a total of 31.97 trillion won on the local stock market this month as of Monday.
Market observers say the won is weakening faster than other major currencies, raising concerns over potential instability.
Against this backdrop, data released Tuesday showed Korean authorities had already carried out record-scale intervention late last year to support the currency.
During the September-December period, authorities net sold $22.47 billion in the foreign exchange market, according to the Bank of Korea. The figure marks the largest intervention since the central bank began disclosing such data in 2019, surpassing the previous record of $17.54 billion in the third quarter of 2022.
The scale of intervention rose sharply from earlier in the year, when net dollar sales stood at $2.96 billion in the first quarter, $797 million in the second quarter, and $1.75 billion in the third quarter.
Authorities typically intervene by selling dollar reserves when the won weakens rapidly, increasing dollar supply to ease downward pressure on the local currency.
The heavy intervention reflected a widening imbalance between supply and demand, as resident capital outflows exceeded the current account surplus, Yoon said.
With the won continuing to face pressure amid Middle East tensions and broader risk-off sentiment, markets expect authorities to remain on alert for further intervention in the coming months.
silverstar@heraldcorp.com
