The won today rose to the highest level since October 1997 against the greenback in line with other Asian currencies on speculations that the central banks may tolerate a weaker dollar.
The imminent end of the interest hike in the United States and the possibility of another Chinese yuan revaluation should accelerate the already quickening pace of the Asian currencies` gain against the U.S. dollar, analysts say.
The local currency today climbed to 927.9 per dollar today and the 11.7 won drop was the largest daily increase since October last year when the won gained 12.5 won in a day.
Some traders forecast the won/dollar rate could even fall below the 900 level.
"The latest won`s rally is not a local issue but it`s a global-wide trend," said Shin Min-young, economist at LG Economic Research Institute. The private think tank has recently cut its currency forecast to 945 won from 960 won. The won/dollar rate could fall to 910 in the second half, the institute said.
The won`s surge to a more than eight-year high against the dollar should give little leeway to the Bank of Korea to decide benchmark interest rates for May on Thursday.
Earlier in the day, Finance Minister Han Duck-soo said that rapid moves in currencies are "undesirable," and emphasized the ministry would take necessary steps to stabilize the won.
The newly appointed central bank governor Lee Sung-tae stressed the timeliness of the monetary policy right after his inauguration, signaling that an additional rate increase may come earlier than expected.
At the previous monthly meeting, Lee reiterated the central bank`s optimism on the bullish economic outlook, warning against signs of asset price instability.
Most analysts predict the BOK policymakers to keep the key rate unchanged at 4 percent for a third month. The central bank is largely expected to opt to freeze the rate and hint at a June high rather than pursue a quick monetary tightening despite opposition from the top economic policymakers and the corporate sector.
The local currency`s ascent against the dollar coupled with record high oil prices have sparked concerns that corporate earnings may decline and hamper growth momentum.
The price of Dubai crude, the nation`s benchmark, dropped to $65.04 Friday after climbing to a new high of $68.58 per barrel during last week. Korea is the world`s fourth-largest oil importer.
The won`s strong rally against the dollar partly reflects the nation`s economic fundamentals as well as the global-wide trend for a weak dollar. Most industrialized nations have called on the Asian economies to tolerate further the weakening dollar to fix the worsening global imbalance problems.
Finance ministers of Asian nations, on the other hand, downplayed the significance of foreign exchange policy and tried to find other measures to resolve the global issues.
Industry insiders and economists called on the foreign currency authority to prevent the won from strengthening too fast to help local firms adapt themselves to the new global business environment.
Not only smaller enterprises but also big business groups are facing a daunting task of preventing their corporate profitability from deteriorating further. Hyundai Motor, for example, is striving to improve the profitability of its overseas production to cope with the weak dollar environment.
"In the worse case scenario, without additional productivity gains, cash shortages resulting from further won appreciation could force the company to abandon developing new cars," said Kim Hag-ju who covers the automobile industry at Samsung Securities Co.
By Kim Jung-min
2006.05.08
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