The U.S. dollar has climbed 30.6 won, or 2.7 percent, against the Korean won over the past month ― also showing gains for the fourth consecutive trading session. Analysts, however, forecast that the local currency’s weakness will not be of much benefit to exporters.
Federal Reserve Chair Janet Yellen’s confirmation Wednesday of an interest rate hike within this year further accelerated the dollar’s strong position in Thursday’s Korean currency market.
The greenback gained 5.6 won from a trading session before to close at 1,149.2 won, with the exchange rate posting its highest in 24 months since it peaked at 1,152.3 won on July 8, 2013.
If the exchange rate exceeds 1,161.4 won, based on the closing price, it will mark the won’s weakest point in over three years.
Samsung Futures analyst Jeon Seung-ji predicted that the dollar would rise to 1,160 won later this year.
Amid sagging exports, the Korean government is believed likely to tolerate the local currency’s depreciation, she said.
“The government could also actively buy the dollar (for a higher won-dollar rate in target of export price competitiveness).”
A Eugene Investment & Futures analyst also raised the possibility of a cheaper Korean currency in the coming weeks. He said that more market participants are now betting on a U.S. rate hike in September, while the past dominant prediction over the timing would be December or next year.
But the situation is not so favorable to Korean exporters compared to past cases, said analysts.
“The Japanese yen and the euro are losing ground versus the dollar more rapidly than the won,” said researcher Park So-youn from Korea Investment & Securities. An analyst from LG Economic Research Institute shared this view, saying that the dollar’s strong position would be restricted, as huge sums of the dollar are flowing to the domestic market on the back of ongoing current account surpluses.
Yellen, in her report of the Fed’s mid-year economic outlook to Congress said “If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds target.”
Yellen stressed that her outlook was based on the expectation that the labor market would keep improving and inflation will begin moving closer to the Fed’s 2 percent target for annual price gains. Inflation is currently running lower than the pace the Fed believes is optimal for a healthy economy.
A decision to raise rates, Yellen said, “will signal how much progress the economy has made in healing from the trauma of the financial crisis.”
Yellen highlighted a number of areas that had improved.
The unemployment rate in June dropped to a seven-year low of 5.3 percent. She also cited “noticeable declines” over the past year in the number of long-term unemployed.
By Kim Yon-se and news reports (firstname.lastname@example.org)