Dollar's weakness pushes won to 30-month high
Korea’s currency hit a 30-month high against the U.S. dollar Thursday as investors' interest in safe-haven assets dwindled and expectations rose for vaccine development and further fiscal stimulus in the United States.
Korea’s won closed at 1,097 won against the greenback Thursday, going below the 1,100-won level for the first time in two and a half years. The currency appreciated by 3.8 won, or 0.34 percent, against the U.S. dollar compared to the previous trading day.
The exchange rate went to as low as 1,096.2 won Thursday.
The surge in the won is seen to have been fueled by optimism over vaccines for Covid-19 and additional stimulus in the United States.
"Mixed elements both from Korea and overseas contributed to the depreciation of the U.S. dollar against the Korean won," said Kwon Ah-min, an analyst from NH Investment & Securities.
"Korea's economy has shown solid improvement, attracting foreign investment and vaccine development and the prospect of a fiscal package in the United States have accelerated the depreciation's speed from November."
Ever since Pfizer and BioNTech announced an effective vaccine for the coronavirus in early November, the value of the U.S. dollar has been teetering. The U.S. dollar index, which measures the value of the greenback against a basket of foreign currencies, tumbled to 91.415 as of Dec. 2, dropping by 5.3 percent compared to the first week of November.
With Britain approving the Covid-19 vaccine to be distributed as early as next week, demand for U.S. dollars dropped more.
Expectations for additional fiscal stimulus in the United States, pumping more liquidity into the market, also directed investors to riskier asset.
On Dec. 2, U.S. senators proposed a $908 billion spending package to fight the pandemic.
The weakness of the U.S. dollar stands in contrast to March, when people around the world couldn’t get enough of the currency after Covid-19 was declared a pandemic.
In March, the won's exchange rate went as high as 1,285.7 as local investors scrambled for U.S. dollars.
“There’s more pressure on the Korean won to appreciate against the greenback amid weak dollar trends,” said Jeon Seung-ji, an analyst at Samsung Securities.
“The speed of its appreciation might be controlled, but it could go as low as 1,080 won.”
Korea’s foreign exchange reserves increased by $9.87 billion in November as other currencies appreciated against the U.S. dollar, the Bank of Korea said Thursday.
It was the biggest monthly increase in a decade. The outstanding amount of foreign exchange reserves now stands at $436.3 billion as of the end of November.
In October, Korea took the ninth spot in terms of foreign exchange holdings. China came in first followed by Japan and Switzerland.
BY JIN EUN-SOO [firstname.lastname@example.org]