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Korean currency could grow stronger

July 27, 2011 - 19:18 By 김주연
Won hits fresh 3-year high on U.S. debt crisis, recording 1,050 against dollar

The won hit a near 3-year high Wednesday, one of a basket of currencies strengthening against the U.S. dollar on jitters Washington may fail to agree on raising its debt ceiling.

Investors unloaded dollars on fears of a possible U.S. debt default and sent the won to 1,049.10 by mid-day, its strongest level since September 2008. Analysts said the won could strengthen further on fears of a downgrade in the U.S. should the debt limit not be raised significantly. The dollar closed at 1,050 won, down from Monday’s 1,051.1

“The won, along with other emerging market currencies, could strengthen further in the next few weeks as investors flee for relatively safer currencies. The markets aren’t expecting Washington to let its economy default, but has fears of an unprecedented downgrade of the ‘AAA’ country,” Byun Ji-young, a FX analyst at Woori Futures said.

She tipped the dollar to weaken to around 1,040 won in the next few weeks. Others believe the won’s appreciation is local in the sense that floating capital is flowing into the market to avoid rainy days in the U.S., but that it won’t last long.

“The won isn’t appreciating because it’s regarded as a safe currency like the Swiss franc or yen. It is rising with a basket of major currencies and the effects will be short-lived,” said Jeong Young-sik, a Samsung Economic Research Institute analyst. Traders said the Bank of Korea is suspected to have intervened on late trading days Tuesday and Wednesday as the dollar slid to around 1,050-level in the afternoons. The stronger won has been a concern for the Bank of Korea and policymakers as it hurts the export-reliant economy. Traders expect more interventions to come to keep the 1,040 won level.

The U.S. faces Aug. 2 deadline to raise the $14.3 trillion debt limit.

By Cynthia J. Kim (