Intervention effect may be minimal amid global trend


The won has been in a gaining spree in its value against the greenback, due to the U.S.’s cheap dollar-oriented policy as well as Korea’s increased trade surplus.

The dollar closed at 1,065 won on Monday, down 6.5 won from a trading session earlier, posting the cheapest level since it slid to 1,062.5 won on Aug. 25, 2008.

After being traded between 1,110 and 1,130 won in March and April, the dollar fell below the 1,080 won mark in late April.

While monetary policymakers are expected to intervene in the foreign exchange market, there are skeptical predictions among research analysts over the efficacy of the intervention aimed at blocking further appreciation.

The authorities may feel burdened about active intervention as the dollar is losing ground against major currencies, analysts say.

“Even if the authorities choose (active) intervention today, the won could appreciate again tomorrow,” Woori Futures analyst Byeon Ji-young said.

“Nevertheless, the possibility of intervention in the coming days is high,” she said. “But I believe the intervention would stay at the level of fine-tuning. The dollar may fall to 1,060 won this month.”

Samsung Futures analyst Jeon Seung-ji cited the nation’s better-than-expected trade surplus totaling $5.82 billion (6.22 trillion won) in April for the strong won.

“Daily exports posted the record high of $2.12 billion on average last month. Brisk exports and continuation of the trade surplus will put pressure on the currency’s further appreciation,” Jeon said in her research report.

Another factor which could affect the won-dollar rate include the monthly key interest-setting of the Bank of Korea, slated for May 12.

But market participants forecast that the effect from raising or freezing the benchmark rate would be minimal, saying the sentiment over gradual rate-hike has already been reflected in the exchange rate trading.

“Even if the BOK’s Monetary Policy Committee remained the rate untouched this month, it would not surprise the market as the rate is steadily moving toward higher this year,” Byeon said.

An official of the Financial Supervisory Service predicted an exchange rate fine-tuning ― also called smoothing operation ― when the joint inquiry of financial regulators and central bankers into foreign currency trading of investment banks ends May 6.

In the past, such a rapid gain would have invited intervention immediately. A strong won was an anathema to top Korean economic policymakers who wanted to generate high rates of growth by promoting exports.

But the government has not even hinted at intervening in the market either in word or deed, giving the impression that it is tolerating a strong won as an antidote to inflation.

By Kim Yon-se (kys@heraldcorp.com)