Korean won slumps against U.S. dollar on expectations of Fed rate hike

Lead

The South Korean won experienced mixed trading against the U.S. dollar this week, according to reports from Yonhap News. On Thursday, the currency rose slightly in the morning session, but on Tuesday and later that week it weakened, with foreign investor selling and expectations of a U.S. Federal Reserve rate hike cited as key factors.

Coverage comparison

Yonhap's reports from June 23 and July 2 offer a snapshot of the currency's volatility. On Tuesday, June 23, the won weakened against the dollar, trading at 1,539.1 won per dollar, down 2.1 won from the previous session, as of 3:30 p.m., according to Yonhap. The currency opened at 1,539.4 won per dollar and fell to as low as 1,542.1 won at one point, marking its weakest level since June 8.

A separate Yonhap report from the same day noted the won opened at 1,539.4 won, down 2.4 won, and fell to 1,540.1 won in morning trading, also the weakest since June 8.

On Thursday, July 2, Yonhap reported two different movements. One article stated the won rose slightly against the dollar after remarks by U.S. Federal Reserve Chair Kevin Warsh that inflation expectations had moderated, opening at 1,522.3 won per dollar, up 2.6 won from the previous session. Another Yonhap article from the same day said the won weakened further to 1,555.8 won per dollar at 3:30 p.m., down 0.9 won, with the exchange rate remaining at the 1,550-level for the second consecutive day. The latter report noted the won opened at 1,552.3 won, up 2.6 won, before declining.

The discrepancy in opening rates—1,522.3 versus 1,552.3 won—suggests the Thursday reports may refer to different sessions or times, but Yonhap's accounts do not clarify the variation.

Key claims

• On Tuesday, June 23, the won traded at 1,539.1 won per dollar as of 3:30 p.m., down 2.1 won, or opened at 1,539.4 won, down 2.4 won, depending on the Yonhap report.
• The weakness on Tuesday was attributed to renewed expectations that the U.S. Federal Reserve would raise rates this year, following its first rate decision under new Chair Kevin Warsh, during which at least half of its policymakers anticipated a higher rate later this year.
• Global oil prices declined on progress in peace talks between the U.S. and Iran, but the won continued to slip due to expectations of a stronger U.S. dollar.
• Foreign investors sold local stocks heavily: Yonhap reported net selling of 4.1 trillion won (US$2.6 billion) on Tuesday, and 4.3 trillion won (US$2.7 billion) on Thursday, marking the 10th consecutive session of net selling. Another Thursday report cited net selling of 1.8 trillion won as of Thursday morning.
• On Thursday, July 2, the won rose initially after Warsh's comments that inflation expectations had moderated, but later weakened, with one Yonhap report quoting the currency at 1,555.8 won at 3:30 p.m.
• Vice Finance Minister Huh Chang said the government is ready to take measures to stabilize the foreign exchange market if necessary, describing the exchange rate as "misaligned" given the nation's economic fundamentals.
• The benchmark KOSPI fell sharply: Yonhap reported it plunged nearly 10 percent to close at 8,203.84 on Tuesday, while another report said it dropped more than 6 percent to 7,790.16 as of 9:15 a.m. Thursday.