Won-Dollar Rate Falls Below 1,170

The won-dollar exchange rate plunged below 1,170 won on Tuesday before the two day meeting of G7 finance ministers starting Friday in Florida.

Amid concerns over the deteriorating profitability of domestic exporters due to the stronger won, the Korea composite stock price index (KOSPI) plummeted 15 points to below 840.

The won-dollar rate fell 2.4 won from the previous day to close at 1,168.0 won to the U.S. dollar, the lowest level since it hit 1,164.4 on October 14.

Shortly after the foreign exchange market opened, the rate went below 1,170 won and down to 1,164.3. The won-dollar rate closed a little higher, however, thanks to the intervention by the foreign exchange authorities.

The KOSPI closed at 839.87 on Tuesday, down 15.02 points from the previous day. With the U.S. stock market showing mixed signals, the appreciating won dampened the investment sentiment. Foreign investors, in particular, sold 140 billion won in Korean stocks.

Other Asian stock markets, such as Japan, Taiwan, and Singapore, fell across the board due to their appreciating currencies along with the effects of bird flu.

“The fall in the won-dollar rate was attributed to the expectation that the G7 meeting will put an upward pressure on Asian currencies,” said a foreign exchange dealer.

Kim Kyung-won, a senior researcher at the Samsung Economic Research Institute, said that the government should limit its intervention to control the pace of won appreciation instead of overly defending the currency and that companies should be prepared for the strong won.

Joong-Hyun Park Kang-Woon Lee sanjuck@donga.com kwoon90@donga.com