Posted February. 23, 2005 22:49,
The Bank of Korea (BOK) sent the U.S. dollar lower, sending shockwaves through international financial markets by announcing its foreign exchange operating plan to diversify currencies for investment.
That boomeranged on the Seoul Foreign Exchange Market, dropping the won value against the U.S. dollar (appreciating the won) for six consecutive days and even lowering it below the 1,000 won mark.
Some expressed their concerns over the possible halt of the much-awaited economic recovery, as the stock price plunged due to the dropping foreign exchange rate and the rapid increase in oil prices.
The Seoul Foreign Exchange Market closed at 1,003.8 won on February 23, a 2.3 won drop from the day before.
As the foreign media and the international financial market interpreted the BOKs data, which said that the central bank would diversify foreign currencies for investment in order to improve profitability of its foreign reserve, as the policy of selling U.S dollars, the value of the dollar collapsed against major currencies, including the Japanese yen and the euro, on February 22 (local time) in the New York Foreign Exchange Market.
The weak dollar immediately affected the Seoul Foreign Exchange Market.
The won-dollar exchange rate, which started at 1,003.0 won per dollar, fell as low as 998.1 won.
The margin of depreciation narrowed after the BOK rushed to explain its announcement and the Ministry of Finance and Economy provided verbal intervention.
Foreign exchange dealers predicted that the depreciation of the dollar below the 1,000 won mark would be realized soon unless authorities present specific measures to stabilize the foreign exchange market.
The Korea Composite Stock Price Index (KOSPI) closed at 968.43 that day, a 9.37-point (0.96 percent) drop from the previous day, with falling stock prices of exporters like Samsung Electronics.
The KOSDAQ Index was also on a downtrend for the four consecutive days (trading days), closing at 490.28, a 4.55-point (0.92 percent) drop from the day before.
The oil price continued its uptrend as the Organization of Petroleum Exporting Countries (OPEC) hinted at a possible reduction of oil production against the backdrop of the weak dollar.
The price of West Texas Intermediate (WTI) traded in the local market on February 22 reached 50.56 dollars a barrel, up 1.99 dollars from the day before, while Brent crude was traded at 47.47 dollars per barrel, a 1.80 dollar increase. The Dubai oil price also increased to $41.20 per barrel, a 0.38 dollar increase from the previous day.