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| An electronic board in Hana Bank's dealing room shows the slight fall of the won-dollar exchange rate, Friday. Yonhap |
Foreign exchange market predicted to stabilize next year
By Lee Min-hyung
The U.S. dollar will continue gaining ground against the Korean won until the end of the year amid persisting external financial uncertainties, especially a top Chinese real estate developer's default risk and imminent signs of U.S. tapering, analysts said Sunday.
Such assessment comes amid the continued steep rise of the won-dollar exchange rate. Last week, the rate reached this year's high of 1,200 won, currency dealers said.
Of particular note is the rapid pace of the dollar's appreciation. The rate hovered around 1,150 won as of early September, but it has since jumped to the level of 1,200 won the following month. The trend was interpreted as a demonstration to justify investors' preference for safer assets after China's Evergrande-related risk started escalating and the U.S. Fed continues sending signals of beginning to reduce its bond-buying campaign.
Experts predicted that the volatile currency market could be able to stabilize as early as the first half of 2022, when fears over such external uncertainties will no longer freeze investors' confidence. They also claimed chances remain slim for the exchange rate to continue rising further to yet another historic level, as the fear sentiment over financial uncertainties abroad has already been fully reflected in the recent surge.
Government efforts to initiate its "living with COVID-19" protocol are cited as another factor contributing to the weakening preference on safer assets.
"We cannot say that any risks surrounding the external uncertainties have been cleared away, but a group of developed countries switching to 'living with COVID-19' strategies will have to put the brakes on the recent rally of the dollar," Hi Investment & Securities economist Park Sang-hyun said.
Park added the global movement for "living with COVID-19" policies could alleviate inflationary risks by easing concerns on global supply disruptions. "The Korean government is also preparing for a phased adoption of the strategy, and this can affect the economy and local financial markets," he said.
But such repeated signals for ending COVID-19 measures are still not enough to weaken investors' preference on a near-term viewpoint and the intensity of the rate movement will be dependent upon any developments in terms of the whereabouts of the benchmark rate, the specifics of which will be reflected in the November rate-setting meeting of the Bank of Korea (BOK), according to Kim Yeon-jin, an analyst at Eugene Investment & Securities.
"The won-dollar exchange rate will remain at a high level of around 1,180 to 1,205 won until the BOK's next rate that could possibly happen in November," the analyst said, adding one key reason behind the prediction is the imminent announcement of the U.S. Fed's tapering during the Federal Open Market Committee meeting slated to be held on Nov. 2 and 3.
BOK Governor Lee Ju-yeol said last week during a National Assembly audit that the bank's possible November rate hike won't have a negative impact on the real economy, adding that he would keep a closer watch on the foreign exchange market, as the level of the recent surge in the exchange rate here was wider than seen in most other countries.
