Tesco’s Sale Of ‘Homeplus’ Could Be Causing The Won-Dollar Exchange Rate to Crash, Observes Some Economists
The exchange rate between the won and dollar has taken a nosedive on Monday at over 1,200 won against the U.S. dollar, amid heightened concerns on nearing Federal Reserve interest rate hike.
The Korea JoongAng Daily reported on Tuesday that the value of Korean won has exceeded 1,200 on Monday, closing at 1,203.70 - a first in five years since July 2010's 1,204 value. The won has lost 2.7 percent within four trading days until Monday.
Until the fickleness of the U.S. rate settles, analysts see the won continuing to trade at 1,200 per dollar.
"All eyes are on the U.S. and the biggest question in the market is when will the Fed raise the rate - September or December?" says an analyst at KB Investment & Securities, Moon Jeong Hee.
"We are seeing both stocks and currency markets reacting to worries about a September rate hike," adds Moon. "Although the predominant view is that the U.S. rate hike is more likely in December, a September rate hike is also a possibility, and this is pulling short-term foreign capital out of local markets."
Korea Times noted on Sunday that another factor causing the Korean won to drop sharply against the U.S. dollar is the sale of Tesco's Korean unit. According to economists, this could lead to an increase in dollar demand, which is why investors opt for low Korean won.
On a brighter note, the Bank of Korea perceives the drop of Korean won to be beneficial to the export market, which has been observed to spiral downward this year.
"The won's weakness is not the biggest concern right now for the BOK," points out an analyst from another firm who wishes to remain anonymous. "The state of the economy is, as GDP growth is widely predicted to miss its forecast from earlier this year."
"There may be suggestions of a further rate cut [among committee members at the BOK], but I am doubtful whether this would help lift the economy any further ... the biggest issue right now is the external factor, most of all the slowdown in exports," the analyst adds.