South Korea’s vice finance minister on Thursday warned that the local foreign exchange market may face higher volatility amid external factors such as the COVID-19 resurgence in Europe and the reignited US-China conflict.

“There are currently various factors which may increase volatility in the global financial market, including the resurgence of COVID-19 in Europe and the escalating tension between the US and China ahead of the US presidential election,” said Kim Yong-beom, first vice minister of finance, in a macroeconomic finance policy meeting held at the Korea Federation of Banks headquarters in central Seoul.

Attending the event were senior officials of the Financial Services Commission, Financial Supervisory Service, Bank of Korea and Korea Center for International Finance.

The vice minister underlined that the rising global volatility may spill over to Korea’s domestic stock and forex markets.

“Last week, the (local) stock market took a strong uptrend, hitting an all-year high, but we should continue efforts to stabilize the market, considering the increased volatility in key economies around the world,” Kim said.

He also attributed the recent rise of the Korean won to the Chinese currency’s strength against the US dollar as the Chinese economy shows signs of rebounding.

Earlier this week, the Korean won closed at 1,158 won against the US dollar, its strongest mark since 1,157 won to the greenback observed on Jan. 15.

“The Federal Open Market Committee has shown gestures for economic recovery through a near-zero interest rate policy until 2023, but some still point out that no tangible solutions have come out so far,” Kim said.

“As uncertainties persist concerning the US monetary policy directions, we should keep a stern watch on the market circumstances.”

Meanwhile, the corporate liquidity level has remained relatively steady on the back of active market stabilizing actions, including the establishment of a state-funded special vehicle to purchase low-credit corporate bonds, Kim added.

“We shall keep a constant eye on the market, focusing on the cash flow in vulnerable industries, lest a credit crunch may reoccur as it did in end-March this year,” he said.

The vice minister also reiterated that long-distance travel to hometowns should be kept to a minimum during the Chuseok holidays that are to run from Sept. 30 to Oct. 4.

“Our battle against COVID-19 is turning from a sprint into a marathon,” he said, urging prolonged social distancing.

“It is regretful that we should ask you to refrain from visiting families and friends, but it is crucial to prevent (mass) infections during the holiday season.”

By Bae Hyun-jung (tellme@heraldcorp.com)