Since December began, the won-dollar exchange rate has broken past a monthly average of 1,470 won, hitting a record high since the foreign exchange crisis. It is notable that the won alone is distinctly weak among major currency peers even as the dollar index is falling.
According to the Bank of Korea's economic statistics system on the 14th, the weekly close for the won-dollar exchange rate on the 12th was 1,473.7 won. In after-hours trading, it climbed intraday to as high as 1,479.9 won, approaching the 1,480-won level.
The exchange rate has been on a high-altitude run above the 1,450-won range since last month, and the average rate last month was 1,460.44 won, the highest monthly average since March 1998 (1,488.87 won) during the foreign exchange crisis.
It is also unusual that only the won weakened while major advanced country currency peers strengthened against the dollar. Since the start of this month, the Australian dollar is up 1.56%, the Canadian dollar 1.50%, and the euro 1.20%, while the value of the won fell 0.69% against the dollar. Even though the dollar index, which shows the dollar's value against the currencies of six major countries, fell from 100.251 on the 20th of last month to 98.404 on the 12th, the won-dollar exchange rate instead rose.
One cited backdrop for the won's weakness is supply-demand factors stemming from an expansion of overseas investment by domestic investors. According to Korea Securities Depository (KSD), individual investors made net purchases of more than $5.5 billion in overseas stocks over the past month. That falls short of October's all-time high ($6.8 billion) but remains large. Through the 12th of this month, they also made net purchases of about $1.1 billion.
Kim Jong-hwa, a Commissioner on the Bank of Korea's monetary policy committee, said at a recent press briefing that about 70% of the factors behind the exchange rate's rise were supply-demand factors such as increased overseas investment by the National Pension Service and individual investors. Dollar demand from corporations' and institutions' hedging needs and year-end settlement and remittances, as well as expanded investment in the United States, is also adding upward pressure on the exchange rate.
Also, on the 11th (local time), the Federal Reserve (Fed) cut its benchmark interest rate, but the impact on the exchange rate was limited. The market expects that demand for overseas investment will continue next year, keeping the high exchange-rate trend in place for the time being.