On the 26th, the won-dollar exchange rate plunged more than 20 won during the session, falling to the 1,420-won range for the first time in a month and a half. With caution persisting over possible market intervention by the foreign exchange authorities, news that the National Pension Service moved to conduct strategic currency hedging appeared to accelerate the decline.
In the Seoul foreign exchange market that day, the won-dollar exchange rate fell to 1,429.5 won at about 11:35 a.m. That was 20.3 won lower than the previous transaction day (on the 24th) weekly transaction closing price (1,449.8 won), and 24.8 won lower compared with the intraday high (1,454.3 won) recorded right after the open. It was the first time since on the 3rd of last month (intraday low of 1,425.8 won) that the rate came down into the 1,420-won range during the session.
After topping 1,480 won early this week, the rate plunged more than 30 won on the 24th. Following the foreign exchange authorities' strong verbal intervention, the government released a tax plan to reduce capital gains taxes on domestic investments by Korean retail investors trading U.S. stocks. The rate opened at 1,484.9 won and fell throughout the session, ending weekly transaction at 1,449.8 won, down 33.8 won from the previous day.
Caution over intervention by the authorities persisted in the foreign exchange market that day, and the exchange rate moved lower. Park Sang-hyun, a researcher at iM Securities, said, "On the 24th, the government clearly showed the market its intent to actively defend the exchange rate, and the market responded," adding, "On the 26th, this caution continued, and the rate appears to be stabilizing lower."
News that the National Pension Service resumed currency hedging also added momentum to the rate's decline. According to the foreign exchange authorities and others, the National Pension Service resumed strategic currency hedging that had been halted in the first half of this year, starting that day. If the won-dollar exchange rate rises more than expected, the National Pension Service sells dollar forwards for up to 10% of its overseas asset, meaning it contracts in advance to sell dollars at a preset rate. This increases dollar supply in the market and has the effect of pushing the rate lower.
Cho Yong-gu, a researcher at Shinyoung Securities, said, "If the government's tax support and the foreign exchange authorities' verbal intervention curbed dollar demand, the National Pension Service's resumption of currency hedging increased dollar supply and had a tangible impact on supply and demand," adding, "If this trend continues through year-end, the rate could fall into the low 1,400-won range."