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Won Slumps: Verbal Efforts Fail Against Dollar Demand
15 Jan
Summary
- South Korean won declined toward a 17-year low, testing official resolve.
- Market expects stronger intervention as verbal efforts failed to curb dollar demand.
- Policymakers are considering macroprudential steps to stabilize forex markets.
South Korea's won has resumed its decline, approaching a 17-year low and challenging the resolve of financial authorities. Despite remarks from US Treasury Secretary Scott Bessent and the Bank of Korea Governor, the currency's depreciation continues, indicating that market participants find verbal efforts insufficient. Persistent demand for dollars from local investors and importers is a key factor fueling the won's weakness.
Officials acknowledge that domestic dollar demand is driven by overseas investments, creating a challenging cycle. The current approach of "jawboning" appears ineffective, with market strategists suggesting that without "actual FX smoothing operations," the won's weakness will likely persist beyond policymakers' comfort levels.
Authorities are aware of these criticisms and are preparing to roll out additional measures. "Macroprudential steps" aimed at stabilizing foreign exchange markets, alongside targeted actions for financial companies, are now under consideration as the government seeks to regain control over currency fluctuations.
