Where is the soaring exchange rate headed…"Possible decline after U.S. September employment figures"

Korea Investment & Securities on the 13th expected that the rapid rise in the won-dollar exchange rate would be limited. This is because if the won-dollar exchange rate reaches the 1480 won range, there could be currency hedging (protection against exchange rate fluctuation) or fine adjustments by authorities.

On the previous day in the Seoul foreign exchange market, the weekly trading closing price of the won against the U.S. dollar (as of 3:30 p.m.) recorded 1465.7 won, up 2.4 won from the previous trading day. The exchange rate has been rising sharply recently, at one point touching 1470 won during the session.

Korea Investment & Securities pointed out that a large part of the recent rapid rise in the won-dollar exchange rate was contributed by increased dollar demand due to residents' overseas investment. Researcher Moon Da-un of Korea Investment & Securities explained, "As residents' overseas investment expands rapidly, expectations of further short-term won weakness become entrenched," and "At this time export companies have an increased incentive to hold onto the dollars they have in order to sell dollars at short-term exchange rate peaks."

However, Moon said, "This movement of the exchange rate has become detached from fundamentals such as a third-quarter Korean gross domestic product (GDP) surprise, a narrowing interest rate gap with the U.S., and strong semiconductor exports," diagnosing it as "a concentration created by expectations and supply-demand."

He said, "Once supply-demand concentrates and the exchange rate raises its level once, the next meaningful upper level is the previous high of 1480 won that had been reached at that time," adding, "Some expect it to rise to 1500 won, but if the dollar index does not rise further, the possibility is limited."

Moon predicted, "At the 1480 won range there is a possibility of strategic currency hedging by the National Pension Service or fine adjustments by authorities, so a rapid further rise in the exchange rate will be limited." He added, "For the exchange rate's rise to calm, strong-dollar pressure needs to clearly ease, and as a trigger for a turn to decline, attention should be paid to the U.S. September employment report, which could be announced as early as next week."

Reporter Ryu Eun-hyeok ehryu@hankyung.com