The government urgently summoned domestic and foreign bank branches and reviewed the foreign exchange market in response to a sharp rise in the won-dollar exchange rate. The financial authorities said they would respond strictly to any acts that disrupt the foreign exchange market.
The Financial Services Commission said on Nov. 8 that it held a "banking sector meeting on the foreign exchange market," presided over by Secretary-General Shin Jin-chang of the Financial Services Commission (FSC), with officials from commercial banks and foreign bank branches in attendance.
The meeting, a follow-up to the joint emergency market situation review by related agencies the day before, was arranged to check recent trends in the foreign exchange market and the foreign currency funding market and to share the results of the previous day's discussions with the banking sector.
Participants cited foreign investors' portfolio rebalancing and profit-taking following gains in the domestic stock market, heightened tensions in the Middle East, and expectations of U.S. interest rate hikes as recent drivers of increased volatility in the foreign exchange market. While assessing that Korea's economic fundamentals and external credibility remain solid, participants agreed that excessive volatility and one-way herd behavior in the foreign exchange market are undesirable.
The government said it would closely analyze the transaction structure of offshore non-deliverable forward (NDF) derivatives trading, as herd behavior in offshore markets could affect the domestic foreign exchange market. It will review measures to absorb offshore NDF trading into the domestic foreign exchange market and asked the banking sector for cooperation.
The government will work with the Bank of Korea and the Financial Supervisory Service to check whether there are speculative moves or market-disrupting acts that ride the won's weakening trend in the foreign exchange market and will take strict action depending on the results.
A financial authorities official said, "Given that market volatility could rise again, the government and related agencies plan to monitor market conditions around the clock with heightened vigilance."
Meanwhile, in the Seoul foreign exchange market that day, the won started trading at 1,555.2 per U.S. dollar, up 16.1 won from the previous trading day's weekly closing price of 1,539.1 won. It later closed at 1,535.0 won following verbal intervention by the foreign exchange authorities. This opening level is the highest since Mar. 6, 2009 (1,590 won), during the global financial crisis.