Won on rise after U.S. climbs off its ‘fiscal cliff’

Despite a brighter economic outlook owing to the U.S. Congress’ last minute passage of a bill to avert the “fiscal cliff” yesterday, the Korean government is worried about the rise of the local currency, which might impact local exporters.

The Korean won closed at 1,063.5 won against the dollar yesterday, up 7.1 won from Friday’s 1,070.6 won. The local currency continued to rise against the greenback throughout the day in response to the news of U.S. House of Representatives’ passage of the compromise deal that will raise taxes on the top U.S. earners and delay spending cuts.

It was the first time in 16 months that the local currency dipped below the 1,070 won mark after it hit 1,068.8 won on Sept. 5, 2011, according to forex dealers.

Finance Minister Bahk Jae-wan told reporters yesterday that there are worries about increasing inflows of foreign capital affecting the won’s value, although the passage of the bill in Washington was welcome news.

“The government is considering implementing phase-by-phase measures [to intervene in the local currency market] at the moment,” Bahk said. “I think the matter is under control for now, and it will have positive impacts on the global economy.”

The local bourse Kospi closed at 2,031.10 yesterday, up 34.05 points from Friday as foreign investors kept up their buying streak of Korean stocks after the U.S. Congress’ action dissolved prolonged market uncertainties.

The fiscal cliff refers to a series of budget cuts and tax increases that were scheduled to take place in the U.S. from Jan. 1.

It threatens the recovery of the global economy this year, since the tax increases and spending cuts were expected to cause Americans to tighten their purse strings, which would force the U.S. economy back into a recession.

Korean exporters were worried about the effect on their second-largest market after China if the U.S. economy went over the fiscal cliff.

Analysts think the chances are high that won will continue to appreciate against the greenback this year as the Korean currency is regarded as safe asset and there’s sufficient liquidity in global markets.

Shinhan Investment predicted the won could appreciate as high as 1,000 won per dollar this year. LG Economic Research Institute predicted the won could rise as high as 1,020 won while maintaining an average of 1,050 won per dollar this year.

“The improved investor’s sentiment reflected in the solution of the fiscal cliff dilemma will push up the won’s value against the dollar,” said Shin Seong-in, an analyst at Shinhan Investment.

By Song Su-hyun, Kim Mi-ju [ssh@joongang.co.kr]