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# November 16, 2004
# The Korea Herald
# By Kim Ji-ho


Greenback weakens across the board


The Korean won breached the psychological threshold of 1,100 per dollar for the first time in seven years yesterday, as the greenback weakened across the board and local exporters scurried to dump their dollar holdings.

Although the won's appreciation heightened angst over the nation's export-driven economy, the Bank of Korea appeared to tolerate the gain, as other Asian currencies, including the yen and Taiwan dollar, also advanced.

"Since the yen and euro are strong, we are just watching the market," said Rhee Yeung-kyun, Bank of Korea assistant governor, who is in charge of foreign exchange.

"The authorities seem to acknowledge the dollar's weakness is a global trend it can't buck," said Kim Doo-hyeon, a currency trader at Korea Exchange Bank.




An electronic board at Korea Exchange Bank shows the Korean won strengthening beyond the psychologically important 1,100 won per dollar level yesterday.


"There's also little room to intervene, as the government is reaching the limit of its currency stabilization bond issues set for this year."

The won firmed for a second session, adding 1.1 percent to 1,092 against the dollar - the strongest since Nov. 24, 1997. It was the biggest one-day gain for the currency since Sept. 22, 2003.

Since the re-election of President George W. Bush, currency markets have been fixated over the yawning U.S. current and budget deficits. The general consensus is that the dollar depreciation will not end soon.

Making his first remarks on the dollar since the Nov. 2 election, U.S. Treasury Secretary John Snow said yesterday, "We support a strong dollar - a strong dollar is in America's interest." Snow's statement echoed the U.S. stance since he took office in January 2003, but the United States has not made any effort to prop up its currency.

"It's obvious that the U.S. government views a weaker dollar as a means to correct their current-account deficit," said Kim Hyeon-wook, a researcher at the state-run Korea Development Institute.

Asia as a whole accounts for around half of total U.S. deficit.

Another factor that shoved the won higher was continued dollar supplies from domestic export companies.

Exports, which account for about two-fifths of Korea's $605 billion economy, ballooned 33.3 percent during the January-October period year-on-year. These companies are plowing dollars into the foreign-exchange market, speeding up the won's climb.

"Companies have always been eager to dump dollars, but government intervention made them hesitate. With ample cash in hand, their dollar supplies will increase further," forecast KEB's Kim.

In Japan - Korea's major trade competitor - the yen rose 0.1 percent to 105.43 versus the dollar as of 6:30 p.m. The Taiwan dollar firmed 0.7 percent to 32.75, while the Singapore dollar gained 0.2 percent to 1.6506. In the past month, the won rose 4.9 percent against the greenback, while the yen advanced 3.9 percent.

Lehman Brothers Holdings Inc. predicted in a report last week that the won may rise to 1,083 per dollar in three months and 1,008 in 12 months.

Kim of Korea Development Institute said the won's future movement will closely follow the yen and other major Asian currencies.

"If the yen continues to strengthen, the won's appreciation is inevitable. But otherwise, the authorities would not just sit back," he said.

The Korean government aggressively intervened in the currency market last year, helping the won fall slightly against the dollar, despite gains in other major currencies. It has refrained from stepping in recently, amid growing criticism that excessive bond issues to keep the won weak are putting the authorities under heavy interest burdens.

The central bank's in-house Institute for Monetary and Economic Research said on Nov. 8 that the won's value should be left to the market supply and demand. That set off rapid appreciation of the won, as currency traders saw little chance of BOK intervention for now.


(jihoho@heraldm.com)