Authorities Warn against Herd Behavior in Foreign Exchange Market

Korea’s foreign exchange authorities warned that they will take actions to curb herd behavior when required, targeting the recent “excessive” movement of local currency. 

The Finance Ministry and the Bank of Korea (BOK) said in a joint statement on October 24, “We are concerned that herd behavior in the market has been intensifying amid the recent quite excessive strength of the won,” saying that they are closely monitoring the financial markets and will take actions against herd behavior if necessary.

Finance Minister Hyun Oh-seok also told reporters that the government plans to be wary of potentially high currency volatility, saying the recent won-dollar exchange rate movement is seen as fast.  

The warning came as the local currency has been under upward pressure against the US dollar, amid an inflow of foreign capital. The won has appreciated about 1 percent to the US dollar so far this year.
Analysts say, however, that the warning has led the local currency to reverse its course, saying the won closed at 1,061 per 1 dollar on the warning day, down 5.2 won from the previous day. 

Korea’s financial authorities have raised their guard against foreign capital flowing into the local market from emerging economies such as India and Indonesia, concerned that the potential excessive strength of the won is feared to spur a further influx of foreign capital.