Record $22.5B Foreign Exchange Sales in Fourth Quarter Highlight Won Pressure
South Korean foreign exchange authorities have signaled a readiness to intervene in currency markets to curb volatility, following the Korean won’s (KRW) recent slide to its weakest level since the 2008 global financial crisis.
“Authorities will take action if market sentiment becomes excessively skewed or if the won deviates significantly from other currencies,” stated Yoon Kyoung-soo, Director General of the International Department at the Bank of Korea, in a statement interpreted as verbal intervention.
These remarks followed the won’s depreciation past the 1,530 level against the US dollar (USD), a low not seen since March 2009. The currency closed at 1,530.1 KRW/USD and briefly touched 1,536.9 during trading hours.
Yoon emphasized that authorities are closely monitoring market supply-demand dynamics, particularly foreign investors’ stock outflows, which are exacerbating the pressure on the won.
Foreign investors have been net sellers of Korean equities, offloading 3.83 trillion won ($2.5 billion USD) worth of shares on Tuesday alone. As of Monday, they have net sold a total of 31.97 trillion won in local stocks this month.
Market analysts observe that the won is weakening at a faster pace compared to other major currencies, raising concerns about potential economic instability in South Korea.
Newly released data reveals that Korean authorities conducted record-breaking intervention in late 2023 to stabilize the won’s value.
The Bank of Korea reported net sales of $22.47 billion USD in the foreign exchange market between September and December. This figure represents the largest intervention since the central bank began publicly disclosing such data in 2019, exceeding the previous high of $17.54 billion in the third quarter of 2022.
The scale of intervention increased dramatically compared to earlier periods in the year, with net dollar sales of $2.96 billion in the first quarter, $797 million in the second quarter, and $1.75 billion in the third quarter.
Authorities typically intervene by selling dollar reserves to increase the dollar supply and ease downward pressure on the won when it weakens rapidly.
Yoon explained that the substantial intervention reflected a growing imbalance between supply and demand, as resident capital outflows outpaced the current account surplus.
With the won facing continued downward pressure amid geopolitical tensions in the Middle East and prevailing risk-off sentiment, markets anticipate that authorities will remain vigilant and prepared for further intervention in the coming months to support the Korean currency.
silverstar
