Won-Dollar Rate
The foreign exchange market is back on alert, as the won is appreciating at a rapid pace.
Recently, the won-dollar rate fell to slightly over 1,060 won to 1 dollar, moving close to this year’s lowest, 1,050 won to 1 dollar, which was recorded in January. The rapid appreciation is likely to affect exporters’ profitability, although the forex market is showing fewer signs of volatility.
According to data published by the Bank of Korea on October 21, the won-dollar rate fell 67.3 won from a quarter ago to 1,074.7 won per US dollar at the end of September. The drop in exchange rate has accelerated since the US Fed’s decision to maintain its quantitative easing policy.
On October 21 the rate gained 1.4 won from a day earlier to reach 1,062.2 won, which is approximately 100 won short compared to this year’s high at 1,161.4 won on June 24. Market insiders are predicting that the exchange rate is likely to break the 1,054.7 won mark, this year’s high recorded in the first month, sooner or later.
According to experts, this is because foreign funds are flocking to Korea, which is considered to have more robust economic fundamentals than other emerging nations. The central bank’s data evidences this. The won’s currency appreciation rate vis-à-vis the US dollar amounted to 6.3% in the third quarter, second only to the British pound’s 6.4% among G20 member countries. It was followed by the euro (4.0%), Canadian dollar (2.0%), Australian dollar (2.0%), Russian ruble (1.4%), Japanese yen (1.0%), Brazilian real (0.6%), and Chinese yuan (0.2%).
In particular, emerging countries’ currencies fell greatly due to the possibility of a reduction in quantitative easing. The Indonesian rupee lost 12.4% while the Argentine peso fell by 7.0%, Indian rupee by 5.1%, Turkish lira by 4.5%, South African rand by 1.5%, and Mexican peso by 1.2%.
In the meantime, the Korean currency’s volatility reduced when compared to the previous quarter. The day-to-day fluctuation rate reached 0.37% on average in the third quarter, 0.06 percentage points down from a quarter ago, to become the sixth-lowest in the G20. Brazil, India, and Indonesia recorded 0.85%, 0.79%, and 0.63% during the same period in an opposite trend.
Economists are pointing out that the appreciation of the won could affect the country’s export competitiveness in spite of its robust economic fundamentals. “The forex rate is continuing to fall, even though the government has voiced against a rapid decline in the foreign exchange rate,” said one of them, adding, “The government would be well advised to pay heed to the situation, because it can lead to deteriorated profitability on the part of exporters and some inflow of speculation funds.”