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Won Falls to 45-month Low Versus Greenback

Posted August. 26, 2008 08:13,   


The Korean won yesterday fell to 1,078.9 per dollar, the lowest since Nov. 17, 2004.

A weaker won is expected to positively affect exports but could spur consumer inflation, which had stabilized to a point after the fall of international oil prices.

On the Seoul foreign exchange market, the won-dollar exchange rate jumped 16.4 won from Friday. The rate has surged a whopping 66.7 points this month alone after closing at 1,012.2 July 31.

Forex experts say a stronger dollar and net stock sales by foreign investors are behind the weakening won. Though the government injected an estimated 800 million U.S. dollars into the market yesterday, it was not enough to prevent the Korean currency from weakening.

Korean importers also rushed to buy more dollars before the won fell further, helping to fuel the surge in the exchange rate.

Financial experts and currency traders say that at this rate, the exchange rate could reach 1,100 over the near term.

A weaker won contributes to a surge in import inflation, aggravates managerial difficulties of domestic importers, and results in larger foreign exchange losses to smaller firms that bought currency option products.

This will also negatively affect Koreans who remit money to their children studying overseas.

Forex experts predict the government will not proactively intervene through injecting foreign exchange reserves in the market, given factors behind the won`s depreciation such as a stronger dollar and rising trade deficit.

jarrett@donga.com rews@donga.com