Experts: Dollar to likely keep falling to won
October 11, 2007
SEOUL — A summer bump in the won-to-dollar exchange rate has disappeared in recent weeks and probably won’t be back, South Korean currency watchers told Stripes Tuesday.
The dollar creeped up against the won this summer, climbing from a late-July commercial rate low of 914 won before rebounding to 947 won in mid-August.
Briefly, it appeared to be headed back in the direction of 1,000-to-1 parity last seen in early 2006. Although that still signified a large drop from a few years ago, it made shopping easy near bases, where stores often take either currency.
However, underlying weakness in the dollar recently highlighted by skyrocketing mortgage defaults in the United States will keep the dollar from climbing against most world currencies — the won included — in the foreseeable future.
“It is not that the won is getting stronger, but that the U.S. dollar is getting weaker continually against euro and yen,” said Heo Chan-gook, director of research for the Korea Economic Research Institute.
The U.S. mortgage defaults, which have bankrupted some financial firms that invested heavily in mortgage-backed securities, could eventually affect the South Korean stock market, Heo said. That could, in turn, keep the won from gaining too much against the dollar.
Lee Seok-jae, a consultant with Seoul’s Foreign Exchange Research Institute, expects the won to gain slowly but steadily.
He agreed with Heo that the rate reflects little about the won and much about the dollar, adding that the U.S. mortgage default problems haven’t ended.
The Bank of Korea has bought dollars, partially in an effort to strengthen the U.S. currency, Lee and Heo said. When the dollar is weak, South Korean imports like Hyundai vehicles and Samsung computers cost more for U.S. consumers.
However, the South Korean government can’t really do much to change the exchange rate right now because of world markets and larger economic forces, Lee said.
Meanwhile, the stronger won isn’t hurting the South Korean economy as some people expected because of big profits in shipbuilding, semiconductors and other key industries, Heo said.
Hwang Hae-rym contributed to this report. E-mail Erik Slavin and Hwang Hae-rym.