Won falls to weakest point in five months on fears of U.S. bank collapse

A screen in Hana Bank's trading room in central Seoul shows the Kospi closing at 2,484.83 points on Wednesday, down 0.17 percent, or 4.19 points, from the previous trading day. [YONHAP]

The won fell to new lows for 2023 against the dollar as fears of the new U.S. bank collapse was sparked by First Republic.

The won fell to 1,340.5 to the dollar on Wednesday, its weakest in five months. It closed at 1,336.3.

“Risk-avoiding sentiment stemming from concerns over global financial instability pressured down the exchange rate,” Kim Seung-hyuk, a researcher at NH Futures, said.

First Republic jitters sparked the foreign investors’ fears, which led them to “sell the crippling won to buy the dollar,” added Kim.

First Republic Bank stocks plummeted by nearly 50 percent Tuesday after the bank reported a drop in deposits in the first quarter, stoking fears of the global banking system instability.

The gloomy prospect for Korea’s economy also accounted for the won’s decline.

Korea’s economy grew 0.3 percent in the first quarter on year to beat market forecasts slightly, according to the advance gross domestic product (GDP) estimate released by the Bank of Korea Tuesday, but dwindling exports remain a pit for the economy going forward.

“The current account balance continues to drop, and the GDP estimate released yesterday is not good enough,” said Lee Sang-heon, an analyst at Hi Investment & Securities. “The dollar is weakening, but the won is weakening further due to Korea’s feeble fundamentals.”

Analysts set the 1,350-won mark as the safety limit for the local currency in the first half.

“Demand for the dollar is likely to increase as companies prepare to pay dividends to foreign investors between late April to early May,” Lee added.

Stocks ended slightly lower, as investors began assessing corporate quarterly earnings amid renewed concerns over the stability of the global banking system and the Sino-U.S. rivalry.

The Kospi shed 4.19 points, or 0.17 percent, to close at 2,484.83, extending its losing streak to a fifth session.

Trading volume was heavy at 1.01 billion shares worth 12.24 trillion won ($9.16 billion), with decliners outpacing gainers 548 to 318.

Foreigners and institutions sold a net 98.29 billion won and 147.82 billion won worth of shares, respectively, while individuals bought a net 220.94 billion won worth of shares.

The index opened slightly lower and had moved within a tight range through the session, as U.S. shares sank on Tuesday due to the recent banking turmoil.

Large-cap shares gathered ground to limit the fall of the index.

SK hynix surged 2.22 percent to 87,400 won as it expected market circumstances to improve in the second half and vowed "a flexible and responsive approach" to its production operations, despite reporting the worst quarterly loss of 3.4 trillion won of losses in the first quarter.

LG Energy Solution jumped 2.9 percent to 567,000 won after posting a 145 percent jump in its first-quarter profit.

Samsung Electronics grew 0.79 percent to 64,100 won.

Carmakers ended mixed, with Hyundai Motor advancing 0.25 percent to 201,500 won and Kia falling 1.04 percent to 85,700 won.

Posco Holdings lost 2.11 percent to 371,500 won, and Posco Future M skidded 4.32 percent to 332,500 won.

Bond prices, which move inversely to yields, closed higher. The yield on three-year government bonds lost 0.4 basis points to 3.259 percent, and the yield on the benchmark 10-year government bonds dropped 9.3 basis points to 3.401 percent.

BY SOHN DONG-JOO,YONHAP [sohn.dongjoo@joongang.co.kr]