The Korea Herald


Won poised to weaken amid risk aversion: analysts


Published : Aug. 7, 2011 - 19:41

    • Link copied

The Korean won is poised to weaken further against the greenback this week over the risk of economic slowdown in the U.S., analysts said.

The won dropped lower against the U.S. dollar in the past week after Washington avoided a partial debt default, averaging a 4.23 won loss each day from Aug. 2 onwards. It traded down 0.53 percent against the dollar on Friday and closed at 1,067.4, after falling as low as 1,074.5, its weakest since late June. 

The won was gaining to a near three-year high and even broke the 1,050 won-level against the dollar at the end of July but the gains weakened on worries about the conditions in the U.S. and the eurozone.

Analysts expect investors to continue to shun emerging market assets in favor of safe haven commodities and currencies this week.

“Investors have propensity to invest in safer assets in times like this which drives emerging market currencies down,” an FX dealer said.

The U.S. on Aug. 1 passed a budget bill that will raise the $14.29 trillion federal debt limit by up to $2.4 trillion won but faced more uncertainty after credit rating agency Standard & Poor’s cut its credit rating to AA+.

Asian currencies finished their worst week since November over jitters in the world’s most powerful economy. Malaysia’s ringgit lost 1.5 percent to 3.0150 per U.S. dollar and the rupee weakened 1.2 percent to 44.74 per dollar.

Some, however, say the foreign exchange market will struggle to establish a clear trend as uncertainty over the U.S. continues.

“There is a chance of the won recovering its earlier losses should stock markets stabilize a little in the U.S. and Europe. Fundamentals are still strong with the Korean economy and its export is in surplus by in large,” a dealer said.

The International Monetary Fund on Friday said the won is still weaker than the pre-financial crisis level although it has appreciated about 6.5 percent against the greenback this year.

“The real effective exchange rate has appreciated 2.1 percent from end-2010 through June 2011, but still remains below the pre-crisis levels and its 2000-07 average,” the IMF said in a statement.

By Cynthia J. Kim (