Foreign Currency Fluctuation Originating in the U.S.

Amidst the anticipation that the U.S. government, after the reelection of President George W. Bush, will proactively pursue the weak dollar policy, currencies in many countries including the Korean won, the euro, and the yen are sharply appreciating.

Many observers say that the Korean government needs to come up with measures to cope with a strong won and a weak dollar since the Korean won’s exchange rate against the U.S. dollar will continue to fall for the time being.

In the foreign exchange market in Seoul yesterday, the won-dollar exchange rate closed at 1,103.60 won, up 1.7 won from the previous day, after having dropped for four consecutive days. It is the lowest rate in seven years, since November 24, 1997 when the Korean financial crisis surfaced and the rate stood at 1085 won.

The Japanese yen also appreciated. The yen-dollar rate also decreased from the 111-yen range early last month to the 105-yen range yesterday in the foreign exchange market in Tokyo, Japan.

The euro is also strong with the dollar-to-euro exchange rate skyrocketing to a record $1.2972 at the New York foreign exchange market last weekend, which soon dropped to $1.2969 on November 8.

The prediction about the weak dollar policy by the U.S. government is gaining weight in the global financial market as the U.S. trade deficit surged to $54 billon in August, the second highest level in history, and this year’s budget deficit is expected to post a record breaking $413 billion.

An official at the Central Bank of China recently said that China would make the dollar-pegged yuan’s exchange rates more flexible, hinting that the country will accept pressure from the U.S. to appreciate the yuan.

The value of the won will also rise when the yuan appreciates, and the won-dollar rate will drop below 1100 won, perhaps even all the way down to 1000 won.

“Considering the current weak dollar trend, it is likely that the won exchange rate against the dollar will drop to the 1110 won range by the end of this year, and to the 1000 won range next year,” said Researcher Oh Moon-seok at the LG Economic Research Institute. He added, “Countermeasures are needed to minimize the impact on the national economy.”