Exchange rate surges then plunges... back to the 1,300-won range [Hankyung FX Market Watch]

The won-dollar exchange rate fell to the 1,300-won range (the won's value rose). The exchange rate, which had risen by nearly 12 won in the previous trading day and broken through 1410 won, reversed by more than that in a single day.

On the 29th in the Seoul foreign exchange market, the won-dollar exchange rate (as of 3:30 p.m.) closed the session at 1398 won 70 jeon, down 13 won 70 jeon from the previous trading day. That day the rate opened at 1409 won, down 3 won 40 jeon, and steadily declined during the session. The one-day drop (13 won 70 jeon) was the largest in about two months since the 16 won 20 jeon fall on the 4th of last month.

Recently the exchange rate had been on an upward trend. The rate, which touched 1400 won intraday on the 24th, rose to the 1400-won range by the close of trading on the 25th and climbed further to the 1410-won range on the 26th. Trade-related uncertainty, such as U.S. pressure for $350 billion in cash investments, and a weakening of expectations for U.S. rate cuts were interpreted as the background.

On the day, the dollar turned weak again, leading to the exchange rate's decline. The dollar index, which shows the dollar's value against six major currencies, recorded 97.948, down 0.44% from the previous trading day. Concerns about a U.S. federal government shutdown and heightened expectations for rate cuts by the U.S. central bank (Fed) are cited as reasons for the dollar's weakness.

The return of foreign investors to the stock market also had an impact. On the day, foreigners net-bought securities worth 445.7 billion won. On the 27th, Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul's statement that exchange rate negotiations with the United States had been concluded is also assessed to have helped stabilize sentiment.

As of 3:30 p.m., the won-yen implied exchange rate was 939 won 89 jeon per 100 yen. It was down 3 won 19 jeon from the same time on the previous trading day. The yen-dollar exchange rate was 148.806 yen per dollar, down 0.64%.

Reporter Kang Jin-kyu josep@hankyung.com