South Korea warned traders that the won’s decline is excessive, becoming the latest Asian central bank to step up defense of its currency as the US-China trade dispute took a toll.
The authorities are to hold a meeting soon to discuss trading that has distorted the currency market, said a South Korean Ministry of Economy and Finance official who asked not to be named citing policy.
The currency has dropped too rapidly in a short period of time, and its weakness is excessive compared to fundamentals, a Bank of Korea official said.
“There is no positive material coming from the US-China negotiations, sentiment in local equities has turned negative and the [US] dollar keeps rallying,” Woori Bank economist Min Gyeong-won said.
The warning might have come too late, with traders set on selling the currency until it reaches 1,200 won per US dollar, he said.
The won has dropped about 2.1 percent this month toward 1,200 per US dollar, spurring at least eight verbal warnings from the ministry and the Bank of Korea, with the tone getting sharper in the past few days.
Asia’s worst-performing currency this year has been buffeted by a sharp slowdown in chip exports, while the trade dispute has hurt South Korea’s economic outlook.
The currency yesterday rose 0.1 to close at 1,193.15 per US dollar, recovering from a loss of as much as 0.2 percent after the comments from the bank and the ministry.
Still, the rebound might be short-lived given the close economic ties between South Korea and China, its largest trading partner, analysts said.
“Jawboning may lead to some short-term consolidation in USD/KRW just south of 1,200, but should not alter the general trend for now,” said Terence Wu, a currency strategist at Oversea-Chinese Banking Corp (華僑銀行) in Singapore. “As long as there is no significant improvement in Sino-US ties, the pressure is for the dollar to stay on the uptrend against Asian currencies.”
Risk-off sentiment yesterday swept Asian markets on news that the US is considering cutting off the flow of vital US technology to as many as five Chinese companies, widening the dragnet beyond Huawei Technologies Co (華為).
The New Taiwan dollar and the Indonesian rupiah have also come under pressure with the escalation in US-China tensions.
Taiwan’s currency has dropped 2 percent this month, while the rupiah is down 1.8 percent, even as Bank Indonesia supports it by buying bonds.
South Korea does have the resources for more direct intervention, with foreign-exchange reserves of US$404 billion as of last month.
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