Weekly Trading Closes at 1,440.3 Won
NPS Resumes FX Hedging, Rate Drops Below 1,430 Won Intraday
After strong verbal intervention by the foreign exchange authorities, the USD-KRW exchange rate closed the weekly trading session in the 1,440 won range for the second consecutive day. On the 26th, amid heightened caution over possible additional intervention and news that the National Pension Service had resumed its FX hedging, the rate fell as low as the 1,429 won range during intraday trading. Market observers are now assessing that the exchange rate has reached an inflection point and is shifting downward.
On the 26th, the USD-KRW exchange rate was displayed on the status board in the Shinhan Bank dealing room in Jung-gu, Seoul. Provided by Shinhan Bank
On the Seoul foreign exchange market on the 26th, the USD-KRW exchange rate closed at 1,440.3 won as of 3:30 p.m., down 9.5 won from the previous trading day. Before the market opened, there were some expectations of a possible rebound, but the rate continued to decline and ended the week lower. This marks the second straight day the rate has remained in the 1,440 won range, following December 24.
The exchange rate opened at 1,449.9 won, up 0.1 won from the previous session, and fluctuated in the early 1,450 won range in the morning. This was attributed to bargain buying, presumed to be real demand from importers settling payments.
However, the rate reversed course and dropped sharply after reports that the National Pension Service was ramping up its strategic FX hedging. By around 11:30 a.m., it had plunged to 1,429.5 won. This was the first time in about a month and a half, since November 4, that the rate fell below the 1,430 won mark during intraday trading. Some bargain buying re-emerged afterward, and the rate traded in the 1,430 won range throughout the afternoon before closing the weekly session at 1,440.3 won.
On the same day, foreign investors bought about 1.7763 trillion won worth of stocks in the domestic KOSPI market, contributing to the downward pressure on the exchange rate. The Dollar Index (DXY), which measures the value of the dollar against the currencies of six major countries, rose 0.13 percent to 98.028.
With the USD-KRW exchange rate, which had previously exceeded the 1,480 won level, remaining below 1,450 won for two consecutive days, there is a growing consensus that the rate began a downward trend starting December 24. The government's comprehensive supply-demand management and strong verbal intervention have been timely, suppressing the market's appetite for dollar purchases.
Lim Hwanyul, a researcher at Woori Bank, said, "Although payment demand from importers and FX demand for overseas stock investments continue to flow in, unlike in the past, we are also seeing supply from sellers at the high end. The strong determination of the foreign exchange authorities to curb the rise in the exchange rate is evident, and the upper limit appears to be firmly capped."
He predicted the upper limit of the exchange rate at 1,460 won, adding, "If it goes above that, intervention by the authorities or caution at the high end will likely bring out selling pressure and stabilize the rate again. The previous trend of the won's weakness exceeding fundamentals is now expected to disappear."
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