No immediate end in sight to won’s rise as QE moves on horizon

The won is expected to continue to strengthen against the U.S. dollar next year, but probably at a slower pace due to monetary easing by major economies, analysts said.

The currency has appreciated 7.86 percent to the U.S. dollar so far this year. It ended at 1,070.60 won to the greenback yesterday.

The won got off to a weak start against the U.S. dollar in the first half of this year, then fell even further to a yearly low of 1,185 won in May after Greece almost dropped out of the euro zone nations amid its worsening debt troubles.

But as economic powers - the U.S., China and Japan - began to pour liquidity in a bid to boost growth by inducing weaker currencies of their own, the won began to sharply rise during the second half, analysts said.
The European Central Bank in September enforced a short-term debt purchase program without a limit, followed by the U.S. Federal Reserve announcing the third quantitative easing (QE3).

Japan soon after joined the line with an increased asset purchase plan. The spate of monetary easing by the three major economies prompted the local currency to sharply increase to the 1,080 won range to the dollar as of Dec. 10.

Analysts forecast the won’s strength against the greenback to continue for some time next year, gradually appreciating to the low- to mid-1,000 level.
Twelve global investment banks have predicted the local currency will rise to as much as 1,048 won against the greenback in the third quarter of next year.

Korean futures companies forecast several months ago that it would likely climb to 1,041 won in the last quarter of 2013.

“A strong won is inevitable as the global economy is expected to recover modestly, with China getting back on track with steady growth,” said Cho Jae-sung, a foreign exchange analyst at Shinhan Bank.

But many analysts agreed that the growth pace of the won will be clipped. “A possible contraction in the current account surplus, stemming from a worsening service balance, may slow the won’s rise,” Byun Ji-young at Woori Futures said.

They also pointed out that the weakening yen will be an important factor in the foreign exchange market next year.

The new Japanese government, led by Prime Minister Shinzo Abe, pledged to force the yen, currently trading at around 85 yen to the dollar, to depreciate to 100 yen through monetary easing.

A weaker yen is considered a downside factor for Korean exporters as it undermines the competitiveness of their exports.

“There’s still room for a further fall in the yen against the won. It could go to 1,170 won per 100 yen,” Byun said.
The won gained to 1,240 won per 100 yen on Thursday, the highest level since May 2010.

Yonhap