Gov`t Intervenes to Stabilize Volatile Won

Volatility in the domestic financial market due to the Cheonan sinking is easing, but the foreign exchange rate remains unpredictable.

Fears are rising that the fiscal crisis in southern Europe will spread throughout the continent and that cheap European capital will flow into Korea due to the weak euro.

The won’s value dropped 14 points Tuesday from Monday to close at 1,216.5 despite major stock markets being closed Monday, including those of the U.S. and Britain. The Korean currency at one point surged 30 points in Monday trading to 1,195 but slumped 10 points to close at 1202.5.

The wide fluctuation is largely blamed on jitters over the Greece-triggered fiscal crisis that threatens to spread throughout Europe. Rumor also has it that France, one of the two main pillars of the European economy along with Germany, will have its sovereign rating downgraded due to an excessive budget deficit.

Experts also predict trouble for the U.K.’s fiscal austerity measures due to the resignation of the British budget minister over a scandal.

Seoul is on high alert to prevent rapid fluctuations of the won. Foreign exchange authorities reportedly bought dollars from the market Friday, when the won’s value went on a rollercoaster ride of between 1,190 and 1,253.

Foreign exchange authorities had released dollars to the market as recently as a week ago to prevent the won from weakening.

Jang Bo-hyeong, head of the financial market department at Hana Institute of Finance, said, “Anxiety in the financial market due to the fiscal crisis in Europe will continue so market fine-tuning by foreign exchange authorities is inevitable for the time being.”

weappon@donga.com