Won falls to a new 13-plus-year low against the dollar

Won trades above 1,340 to the dollar on Monday, the first in 13 years and four months. An electronic display outside Hana Bank in central Seoul shows won against dollar on the same day. [NEWS1]

The won hit a 13-plus-year low as the currency fell more than 1 percent against the dollar, hitting levels not seen since the global financial crisis.

It traded at 1,340.20 won per dollar intraday on Monday, the first time the won broke 1,340 since April 29, 2009, when it reached 1,357.7.

The currency is down more than 10 percent this year following the start of the Russia-Ukraine war, on strong inflation and as the U.S. Federal Reserve quickly increases interest rates.

The won has been trading above 1,300 to the dollar since June.

A falling won puts the country in a difficult position. It increases the cost of imports and puts pressure on the central bank to increase interest rates, which could destabilize the already much-indebted economy.

In the United States, the Fed funds rate is now set in a range of 2.25 percent to 2.50 percent, compared to the 2.25 percent base rate in Korea.

Monday's fall follows the U.S. Federal Reserve's indication last week it will continue raising rates until inflation slows substantially.

Federal Reserve Bank of St. Louis President James Bullard suggested in an interview with the Wall Street Journal released last week that he may support another major rate increase.

Talks about a currency swap between Korea and the United States were expected during visits by U.S. President Joe Biden in May and U.S. Treasury Secretary Janet Yellen in July.

A swaps agreement has the potential to stabilize the won.

No such talks took place, although authorities agreed to cooperate in stabilizing the foreign exchange markets. Korea has said it does not need a swap agreement with the United States.

Korea's total foreign reserves in July were $438.61 billion, down 4.4 percent on year. They fell for four months straight through June, but increased slightly last month.

A fall in foreign reserves may indicate intervention in the currency markets.

The country sold a net $8.3 billion of foreign exchange reserves to prop up the currency in the first quarter. Second quarter numbers will not be released until the end of the third quarter.

“We’re monitoring the market and are regularly responding to the changes,” said Park Ki-hak, a spokesperson for the Ministry of Economy and Finance Monday. “We check the currency level and also review the value of other currencies against the dollar to check whether a fall in currency is only happening for Korea or is a global phenomenon,” Park added citing the weak yen.

The yen reached a fresh 24-year low in July.

The Bank of Korea is holding a monetary policy meeting on Thursday. If the central bank raises the rate by a quarter percentage point, Korea's base rate will be on par with the Fed Funds Rate in the United States.

The Fed's next two-day meeting is scheduled to start on Sept. 20.

The won traded at 1,339.80 to the dollar when the market closed on Monday.

The Kospi fell 1.21 percent to 2,462.50 points, while Kosdaq plunged 2.25 percent to 795.87.

BY JIN MIN-JI [jin.minji@joongang.co.kr]