South Korea Issues Fresh Warning as Won Volatility Persists
South Korean authorities issued another warning Thursday about forex market volatility
Quick overview
- South Korean authorities warned about forex market volatility and indicated readiness to implement stabilization measures if necessary.
- The current dollar-won exchange rate is viewed as disconnected from Korea's economic fundamentals, prompting concerns from officials.
- Increased Korean investment in overseas equities is contributing to the downward pressure on the won, as it requires dollar purchases.
- Despite recent warnings and some stabilization, the currency has not strengthened significantly, raising questions about the effectiveness of verbal interventions.
South Korean authorities issued another warning Thursday about forex market volatility, saying they’ll move fast with stabilization measures if needed. The message came right after Finance Minister Koo Yoon-cheol met with the central bank chief and top regulators to discuss the won’s weakness.
Volatility in the currency market stayed elevated, though it’s eased somewhat recently as offshore investors came back to Korean equities. The finance ministry statement said the current dollar-won exchange rate “remains far from Korea’s economic fundamentals.”
That disconnect matters, officials said. Maintaining a firm policy stance and responding quickly with follow-up measures is critical when markets diverge from underlying economics.
BOK Governor Rhee Chang-yong said last Friday that dollar-won rates above 1,450 seemed disconnected from fundamentals after the pair spiked above 1,480 in late December. He partially blamed increased Korean investment in overseas equities for driving dollar demand.
The currency closed Thursday at 1,449.60 in Seoul onshore trading, slightly weaker than Wednesday’s 1,445.80. That keeps it near the levels authorities flagged as problematic.
This marks the latest in a series of warnings from Korean officials about currency moves. The repetition suggests concern that market dynamics aren’t correcting on their own despite verbal intervention.
Korean retail investors pouring money into US stocks has been cited repeatedly as a structural driver of won weakness. When locals buy foreign equities, they need dollars, which pressures the won lower. That capital outflow creates persistent downward pressure separate from trade flows or speculative positioning.
The won’s slide past 1,480 in December triggered the strongest official pushback yet. Since then, the currency has stabilized somewhat but hasn’t strengthened meaningfully despite the warnings.
Whether authorities move beyond words to actual market intervention remains the question. Seoul has tools available including direct FX intervention, measures to slow capital outflows, or stricter regulations on foreign investment by retail traders.
For now, officials are sticking with communication strategy, repeatedly emphasizing their readiness to act while stopping short of concrete steps. That approach works if market participants believe the threat is credible and adjust positioning accordingly. If traders doubt Seoul’s willingness to intervene or think fundamentals justify current levels, verbal warnings lose effectiveness.
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