Won Rally Nears Its End as Policymakers Warn of Intervention

The won’s biggest monthly gain since June last year is prompting some analysts to warn the rally may be overdone.

Standard Chartered Bank Korea Ltd. and Woori Bank estimate that the won may be near its peak after jumping 3% against the dollar in October to lead performance in Asia. The surge prompted the authorities to issue verbal warnings, even as technicals suggest the currency is overbought.

“The economic situation isn’t all that optimistic,” Park Chong Hoon, an economist at StanChart in Seoul said, adding that the wide trade surplus that has supported the currency is unlikely to persist. “Foreign investors are continuing to sell local assets, while South Koreans continue to invest aboard in search for better yields.”

Won Rally Nears Its End as Policymakers Warn of Intervention

The won has rallied for five straight months bolstered by a surprise jump in economic growth and the fastest increase in exports in decades. The calls for caution come against broader bullish consensus from others like UBS Group AG and RBC Capital Markets, which had argued that a Joe Biden victory in the Nov. 3 U.S. election would support trade-dependent currencies.

Woori Bank’s Min Gyeong-won disagrees. He sees the won declining next year on expectations that U.S. trade protectionism will continue no matter who wins the elections.

“Whoever becomes the president, U.S.-China trade tensions are likely to heighten,” said Min. “Markets are looking at Biden as if he is a savior to the world, but in fact his trade stance isn’t that much different from Trump’s protectionism policies.”


Technical analysis show the won may be primed for a pull-back. Slow stochastics, a momentum indicator, is signaling that it may struggle to advance past 1,120 against the dollar in the near-term.

The currency rose 0.1% on Monday to 1,135.95, with StanChart forecasting it to weaken to 1,220 by year-end.

The won’s gains brought a warning last week from the nation’s Vice Finance Minister Kim Yong-beom, who said the government will take measures to stabilize currency markets if needed. Bank of Korea Governor Lee Ju-yeol on Monday asked senior officials at the central bank to closely monitor financial and FX markets. The currency’s advance in October far outpaced other Asian tech exporters, with the offshore yuan only rising 1.3% while the Taiwan dollar gained 0.9%.

“Dollar-won’s drop is likely to be capped around 1,130 as that level seems to attract verbal warnings from authorities,” said Min.

Read More:
Won Rally Looks Unstoppable on China, Korea Growth Story
Won, Rupiah Stand to Gain Most When Foreign Flows Return to EM

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