The South Korean won hit a two-week high yesterday after foreign exchange authorities sold up to US$2 billion to prop it up, traders said.
On currency markets, the US dollar was quoted at 1,032.70 won, after 1,042.90 won on Monday. Earlier yesterday the won rallied as high as 1,025.33, its strongest since June 23.
“Foreign exchange authorities are known to have sold up to US$2 billion to support the won,” Citibank dealer Oh Suk-tae said.
Inflation
The currency has fallen more than 10 percent against the dollar so far this year, making imports more expensive and putting upward pressure on inflation.
The finance ministry and the central bank jointly warned on Monday that they would use foreign exchange reserves to support the won.
South Korea, Asia’s fourth-largest economy, imports virtually all its oil needs and has been hit especially hard by soaring crude prices.
Annual inflation rose to 5.5 percent last month — close to a 10-year high.
Analysts say intervention may not dampen the strong appetite for the greenback because foreign investors are unwinding holdings in emerging markets — betting that growing inflation risks will further hurt sentiment.
Sell-off
Foreign investors have unloaded shares worth more than six trillion won (US$5.82 billion) in total for 22 consecutive days in the local stock market.
“Frequent interventions by foreign exchange authorities are losing the market’s trust,” Oh said.
Authorities have sold a sizeable quantity of dollars to prop up the won in recent weeks but the impact has been short-lived.
The country’s foreign exchange reserves, the world’s sixth largest, shrank to US$258.1 billion at the end of last month from US$262.2 billion at the end of last year.
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