Korean won rebounds on estimated $2 bn intervention

The South Korean won rebounded on Friday as the foreign exchange authorities were suspected of selling some $2 billion, showing its determination to keep the currency from breaking through the psychologically important 1,400 per dollar level, traders said.

The won ended local trade up 0.4% at 1,388 per dollar. The local unit started the day at 1,399, 0.4% softer than the previous close, hitting its weakest point since March 31, 2009.

But the South Korean currency suddenly rebounded about 20 minutes before the domestic market closed when the foreign exchange authorities were suspected of dumping about $2 billion, currency market participants said.

“The authorities seemed to have managed the domestic closing price,” said Moon Hong-cheol, an economist at DB Financial Investment.

The dollar/won spot trading volume soared $2.7 billion – about a third of the total of $7.6 billion in the local currency market for the day – between 3 p.m. and 3:30 p.m. The trading volume was a mere $340 million in the prior 30 minutes.

The authorities were estimated to have spent more than $700 million on Thursday to support the won, the worst performer among emerging Asian currencies with a 14.4% depreciation versus the US currency so far this year.

South Korea is likely to keep selling dollars for the ailing currency until the Federal Reserve’s policy meeting later this month when the US central bank is expected to raise interest rates, probably by 75 basis points, currency market participants said.

US-KOREA CURRENCY SWAP

Market participants are watching out for any discussion of a currency swap between the US and South Korea during a summit next week.

South Korean President Yoon Suk-yeol and US President Joe Biden may explore a currency swap deal, which could support the won, when they meet on the sidelines of the UN General Assembly in New York on Sept. 20-21, said Seoul’s presidential official.

"The leaders agreed during their May summit to closely cooperate on the foreign exchange market and we also had talks between our finance ministers," Choi Sang-mok, senior presidential secretary for economic affairs, told reporters. "We expect that some sort of discussion could naturally take place."

A $60-billion currency swap pact agreed on in March 2020 by the Fed and the Bank of Korea, as an emergency measure to stabilize currency markets, expired at the end of 2021.

Such a swap would allow South Korea to borrow a certain amount of dollars for a pre-set period and rate, in exchange for won, to alleviate difficulties in dollar liquidity.

Write to Mi-Hyun Jo and Dong-woo Jwa at mwise@hankyung.com
Jongwoo Cheon edited this article.