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Categorized | Currencies

South Korean won at highest in six years

Posted on May 30, 2014

An employee counts South Korean 10,000 won banknotes at the Shinhan Bank headquarters, a unit of Shinhan Financial Group Co., in Seoul, South Korea, on Thursday, Feb. 6, 2014. Shinhan Financial, South Korea’s biggest financial company by market value, is scheduled to release fourth quarter earnings on Feb. 11. Photographer: SeongJoon Cho/Bloomberg©Bloomberg

The South Korean won has ended the month at its highest level in almost six years as capital inflows and strong export data put pressure on the currency to rise.

Elsewhere in the currency markets, the dollar ended the week on a softer footing with sterling on Friday paring its biggest monthly loss against the US unit since January.

The won has gained more than 10 per cent against the dollar over the past 12 months, making it the best-performing currency in Asia.

    It reached Won1,020 per US dollar on Friday, its strongest since August 2008.

    Geoff Kendrick, FX strategist at Morgan Stanley, now forecasts a won rally all the way to Won950 a dollar, which would be the highest since January 2008. Its historic record level is Won920, reached in December 2006.

    Portfolio investment has been a major factor guiding the won. In the past week, global investors have put $588m into Korean equity funds, according to data released on Friday by EPFR, the fund flow tracker.

    Bond buying has also been strong with overseas sovereign wealth funds and central banks adding billions of dollars to their Korean debt holdings this year.

    With economies in the west showing signs of building momentum, export-driven markets in Asia – particularly Korea and Taiwan – are also benefiting from improved demand for goods.

    Trade data released this week show that won strength has done little so far to dent export performance. Even so, the rising currency is an increasing cause for concern among Korean manufacturers.

    A recent survey by the Korea International Trade Association highlighted a level of Won1,045 as the point beyond which the won would start to have a negative impact on the bottom line.

    That level was breached in April as the country’s economic picture showed signs of improvement.

    In the wider currency markets, the dollar index was 0.2 per cent lower on Friday to stand flat on the week while sterling’s gain of 0.3 per cent against the dollar limited weekly losses to 0.4 per cent.

    “The dollar’s ambitious rally on Wednesday against the euro and pound was checked by the market this past session,” said John Kicklighter of DailyFX. “Though the ‘risk on’ mentality that is driving volatility measures across asset classes lower may not be leading the currency to a comparable collapse, it prevents bulls from gaining a foothold.”