South Korea’s Won Plummets to 15-Year Low Amid Global Uncertainty
The South Korean won has taken a drastic hit, plummeting to its weakest level in 15 years. This sudden decline is attributed to a combination of factors, including the U.S. Federal Reserve’s cautious approach to interest rate cuts and domestic political instability.
Federal Reserve’s Hawkish Stance Weighs on Won
On Wednesday, the U.S. central bank cut interest rates as expected, but Federal Reserve Chair Jerome Powell’s comments hinted at a more conservative approach to future rate reductions. This hawkish stance has led to a surge in the dollar, putting downward pressure on the won. The U.S. central bankers now project only two quarter-percentage-point rate reductions next year, half a percentage point less than anticipated in September.
Domestic Political Turmoil Adds to Won’s Woes
The won has already been struggling due to domestic political turmoil, following impeached President Yoon Suk Yeol’s short-lived martial law attempt earlier this month. The Bank of Korea has flagged downside risks to its economic growth forecasts for this year and next year, taking into account the negative economic impact of the Dec. 3 martial law order.
Won’s Performance This Year
So far in December, the won has weakened 3.9% against the dollar, extending losses for a third consecutive month. The won, down 11% year-to-date, is the worst performing emerging Asian currency of the year and is set to record its worst year since 2008.
Government Intervention to Stabilize Markets
Prior to market open on Thursday, South Korea’s finance minister assured that the government and the central bank would swiftly deploy measures to stabilize financial markets if volatility was seen as excessive. Authorities are suspected to be defending the 1,450 figure, making it difficult to short the won around that level. To ease pressure on the currency, the country’s Financial Services Commission has asked local banks to flexibly manage foreign exchange transactions and loans.
Stock Market Takes a Hit
In the stock market, the benchmark KOSPI dropped as much as 2.5%, as foreigners sold local shares. The won’s weakness has added to the downward pressure on the stock market, causing investors to flee.
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