'Stopped at around 1430 won per dollar'… Exchange rate 'surges' 3 hours later [Hankyung FX Market Watch]

How will the exchange rate be next year

"Rise due to bargain-buying inflows" vs

"Decline due to currency hedging" Opinions differ

The won-dollar exchange rate finished daytime trading at 1439 won, then surged more than 10 won in night trading to touch 1450 won. Although authorities succeeded in managing the year-end closing at the 1430 won level, a rapid upward trend followed, raising concerns that the exchange rate may rise again next year.

On the 30th at the Seoul foreign exchange market, the won-dollar exchange rate rose above 1440 won immediately after finishing daytime trading at 1439 won at 3:30 p.m. The rate, which had been trading in the 1443–1448 won range around 4–5 p.m., touched 1450 won at about 6:17 p.m. after the London market opened. The exchange rate rose sharply in about three hours after daytime trading ended.

Although the foreign exchange authorities closed the daytime rate at 1439 won that day, importers and overseas investors, who saw the intervention strength as weaker than the day before, moved to bargain-buy, which is understood to have pushed the rate up. Night trading has low volume, so the level of the exchange rate is of limited significance, but because the magnitude of the rise is large, the market is closely watching the trend.

As the rate surged after the close of daytime trading, concerns have grown that the exchange rate could rise again next year. With the foreign exchange supply-demand structure not changing significantly and the authorities' ability to intervene reduced, there are forecasts that the rate could shortly rise above 1450 won.

On the other hand, some argue that if daytime trading reopens at the beginning of the year, the National Pension Service's currency hedging will be reactivated and the exchange rate could fall further. Citigroup said in a report that "the National Pension Service's strategic currency hedging will continue for a considerable period, at least through the first half of next year," and "based on estimates from the February–April cases, the NPS's hedging (using swaps with the Bank of Korea) would reduce spot dollar demand by up to about 5 billion dollars per month." Citigroup cited the Bank of Korea's measures to bolster foreign exchange reserves, such as the 'foreign currency reserve ...', which are expected to be implemented through June, as a basis for expecting hedging to continue through the first half of next year.

Park Sang-hyun, senior research fellow at iM Securities, also said, "There is a large possibility that the NPS's hedging will intensify at the beginning of the year," and "it appears that, from a supply-demand perspective, it will lead to downward pressure on the exchange rate." Korea Investment & Securities forecast that, overlapping with the National Pension Service's strategic hedging effects, the won-dollar exchange rate could fall further to around 1390 won in early next year.

Reporter Kang Jin-kyu josep@hankyung.com