Bloomberg SEOUL (Bloomberg) — The won swung to a loss as the South Korean government warned about the currency’s ascent, the latest Asian nation to push back against foreign-exchange strength as investors jump on emerging-market assets.
The currency climbed against the dollar early Monday before sharply reversing to sink as much as 0.7 percent as traders speculated that the government was in the market. In response to a request for comment from Bloomberg News on the move, an official at the nation’s FX authority said that South Korea will take steps “sternly” in the case of one-sided moves in the won as the dollar weakens globally. The official asked not to be identified because of policy.
The won was Asia’s best-performing currency last year, climbing almost 13 percent, as its economy benefited from thriving exports and the central bank raised interest rates for the first time since 2011. The Korean government may find that room to act against further advances will increasingly be limited as talks to revise a free-trade agreement with the U.S. proceeds, according to Schroder Investment Management Ltd.
The currency had dropped to an intraday low of 1,069.80 per dollar, reversing an earlier gain to 1,058.80, with traders speculating that the swing was due to the authorities buying dollars in the market.
The whipsaw in the won comes as proposed talks between North and South Korea are set to start Tuesday. The dialogue, announced last week, boosted investor sentiment with the suggestion that geopolitical tensions is easing.
The resumption of talks temporarily had led the won to strengthen past 1,060, according to An Young Jin, an economist at SK Securities Ltd. “The currency is showing a one-sided movement,” said An. “Basically, it is a bit excessive.”
Still, further attempts to curb the won’s gains may be limited, analysts and investors said. South Korea is on the U.S. Treasury watch list of countries deemed at risk of engaging in currency manipulation, and in October the Asian nation agreed to amend a U.S. free trade deal.
Going forward, the Bank of Korea may be in a “weak position” to bring down its currency as the free-trade pact is negotiated, said Rajeev De Mello, head of Asian fixed-income at Schroder Investment Management in Singapore. “The U.S. administration has said it doesn’t want countries to weaken their currencies artificially.”Speech