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S. Korean won likely to remain weak against US dollar this year

January 4, 2016

The South Korean currency continued to strengthen against both the U.S. dollar and the Japanese Yen. (Yonhap)

In the new year, the dollar is widely expected to strengthen against the euro and the yen, as well as emerging-market currencies, in the wake of the U.S. rate rise in December, analysts said. (Yonhap)

SEOUL (Yonhap) — The South Korean won is likely to remain weak against the U.S. dollar this year on growing uncertainty in emerging economies following a U.S. rate hike and a slowdown in the Chinese economy, market watchers said Sunday.

The local currency, however, is not expected to drop sharply against the greenback in light of Seoul’s strong foreign exchange position and its sufficient current account surplus, they said.

The South Korean currency started at 1,103.50 won to the dollar on the first trading day of 2015 and closed the year at 1,172.50 won, down 6.65 percent from a year earlier.

In the first half of last year, the won trended higher against the greenback as South Korea’s current account balance remained in the black and foreign investors were net buyers of local stocks.

In the second half, however, the dollar turned bullish amid growing expectations of an interest rate increase in the world’s largest economy.

In the new year, the dollar is widely expected to strengthen against the euro and the yen, as well as emerging-market currencies, in the wake of the U.S. rate rise in December, analysts said.

“In contrast with last year, the won is forecast to weaken against the dollar as the U.S. rate hike has increased uncertainty in emerging economies,” said Choi Moon-bak, a senior researcher at LG Economic Research Institute.

Also putting downward pressure on the South Korea currency is a projection that China will not be able to turn around its slowing economy quickly, he added.

He expected the won-dollar exchange rate to average 1,185 won this year.

Other watchers cautioned that the won-dollar rate could become more volatile, though there may be a low possibility of the local currency tumbling against the greenback.

The value of the won against the greenback could fluctuate sharply whenever unfavorable external factors, such as signs of a U.S. rate rise, take place, they added.

In a meeting with a group of senior economists in late December, Bank of Korea Gov. Lee Ju-yeol warned the volatility of the foreign exchange rate will likely escalate during the process of “the U.S. zero interest rate returning to normal.”

Meanwhile, foreign investment banks have projected the South Korean currency to trade at 1,218 won against the dollar in the fourth quarter of the year, down 3.9 percent from the close on the final trading day last year.