Won continues freefall to 1,464.8 as political strife worsens

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Won continues freefall to 1,464.8 as political strife worsens

Published: 26 Dec. 2024, 18:17 Updated: 26 Dec. 2024, 19:10

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

A screen in Hana Bank's trading room in central Seoul shows the Kospi closing at 2,429.67 points on Dec. 26, down 10.85 points or 0.44 percent from the previous trading session. The won closed its regular trading at 1,464.8 per dollar as of 3:30 p.m., up 8.4 won. [NEWS1]

The Korean won plummeted further on Thursday, even breaching the 1,460 per dollar threshold for the first time since the global financial crisis of 2009.

The latest plunge came amid heightened political chaos as the Democratic Party (DP) moved to impeach the acting president.

Shares also extended losses for the second consecutive trading session against the backdrop of surging uncertainties, with retail investors driving the decline.

The benchmark Kospi fell 10.85 points, or 0.44 percent, to 2,429.67 on Thursday after a choppy session. Trading volume was weak at 6.08 trillion won, with retail investors offloading shares worth a net of 248 billion won, while institutions bought 121 billion won and foreigners, 17.3 billion won.

The won-dollar exchange rate closed at 1,464.8 per dollar as of 3:30 p.m., up 8.4 won from the previous session. It was the weakest closing rate since March 13, 2009, when the impact of the Great Recession of 2008 pushed it to 1,483.5.

After opening at 1,455.2 won per dollar, the rate peaked at 1,466 at around 3:20 p.m., the weakest point during regular trading since 1,488 won to the dollar was recorded on March 16, 2009.

The won briefly traded above the 1,460 threshold during extended trading hours on Tuesday.

The won-dollar exchange rate has been hovering above the 1,450 won mark for five trading days in a row since Dec. 19, when the U.S. Federal Reserve’s hawkish outlook for benchmark rate reductions next year further strengthened the dollar.

The won's recent depreciation was particularly steep even considering the dollar's strength, as the domestic political turmoil added to the devaluation pressures on the already fragile market.

The latest development has been driven by acting President Han Duck-soo, who has been in charge since President Yoon Suk Yeol's impeachment on Dec. 14, declining to approve Constitutional Court justice nominees, which prompted the DP to move to submit an impeachment motion against him in the National Assembly.

Acting President Han Duck-soo delivers a public address at the government complex in Jongno District, central Seoul, on Dec. 26. [JOINT PRESS CORPS] 한덕수 대통령 권한대행 국무총리가 26일 서울 종로구 정부서울청사 브리핑룸에서 대국민담화를 하고 있다. /2024.12.26 대통령실사진기자단 세계일보 남정탁

"The won depreciated while the U.S. dollar index remained largely unchanged [at the 108 level since Dec. 19], as domestic risks played a significant part,” noted iM Securities economist Park Sang-hyun.

“It appears that foreigners’ concerns are growing over the ongoing situation surrounding the impeachment proceedings,” said Park, suggesting that prolonged uncertainties — coupled with mounting woes over the weak domestic economy — are having a negative impact on sovereign credit and foreign capital flow.

If the persistent political uncertainties continue to surge without a prompt resolution, the won-dollar exchange rate may reach the 1,500 per dollar mark earlier than expected, Park warned.

Korea’s consumer sentiment index fell 12.3 points to 88.4 in December, the largest monthly fall since the Covid-19 pandemic outbreak in 2020, according to the Bank of Korea on Tuesday.

Hana Securities economist Chun Kyu-yeon also warned against dismissing the possibility of the exchange rate reaching the 1,500 won-per-dollar level.

“The won-dollar exchange rate is likely to move further upward considering the incoming Donald Trump administration’s America First policy directions and a potential escalation of the trade conflict,” said Chun.

“The won-dollar exchange rate’s trajectory for 2025 will depend on where the exchange rate stands at the time of Trump’s inauguration, and if the foreign exchange situation remains unstable, it will be necessary to remain open to the possibility of a 1,500 won-per-dollar level next year.”

BY SHIN HA-NEE [[email protected]]