A currency exchange office in Myeong-dong, Jung-gu, Seoul. Yonhap News
The won-dollar exchange rate has been more volatile this year than at any time since the global financial crisis, as domestic and external factors pushed the currency on a wild ride — from nearly 1,560 won at its peak to the low 1,400s in a recent plunge.
The average monthly swing in the exchange rate through the end of last month came to 47.0 won, according to the Seoul foreign exchange market and the Bank of Korea on the 9th. That is the widest since 2009, when the global financial crisis drove volatility to an extreme at 61.2 won.
The average monthly swing has topped 40 won on only four occasions: during the 1997 (72.2 won) and 1998 (97.6 won) currency crisis, and during the 2008 (68.3 won) and 2009 (61.2 won) financial crisis.
Daily volatility has also been the highest since the financial crisis. Through the 7th of this year, the daily swing in the exchange rate averaged 8.2 won, the highest since 2009, when it averaged 9.4 won.
The roller-coaster reflects a sharp reversal. The won-dollar rate, which stood in the mid-1,400s at the start of the year, climbed as oil prices surged on the U.S.-Iran war, reaching as high as 1,555.8 won on a weekly closing basis. It then fell back to the low 1,400s in recent weeks after an inflow of funds tied to SK hynix’s (000660.KS) listing of American depositary receipts (ADRs) in the United States. The rate fell 139.7 won over the 25 trading days from the 2nd of last month through the 7th — an average drop of 5.6 won a day.
A rebound in the won eases upward pressure on prices and helps stabilize the foreign exchange market, but the pace of the decline has been so fast that it can create management uncertainty and foreign exchange losses for companies. “Companies that delayed selling dollars in anticipation of a further rise in the exchange rate, or that bought dollar forwards, may have incurred foreign exchange losses,” said Lee Min-hyuk, an economist at KB Kookmin Bank.
Forecasts for the exchange rate diverge. Some predict the rate will fall further into the 1,300s if the U.S. Federal Reserve holds interest rates steady and international oil prices stabilize. Others counter that it will be hard for the rate to move below the 1,400s if domestic stock market volatility widens and retail investors step up their overseas equity investments.