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S. Korean Won Plunges on Stock Setbacks
South Korea's currency plunged against the U.S. dollar on Dec.2, mainly due to massive sell-offs on the local bourse triggered by overnight setbacks on Wall Street, Yonhap News quoted analysts as having said on Dec. 2.

The won finished at 1,464.5 won to the greenback, down 24.5 won from Monday's close, after falling as low as 1,483 won in early trading.

The decline comes after five days of gains, which saw the currency climb 73 won against the dollar since Nov. 25. The won has lost 36 percent against the dollar so far this year.

"Stock pullbacks coupled with a lingering risk-averse market mood put downward pressure on the won's value," said Jeon Seung-ji, a currency analyst at Samsung Futures. "The losses were slightly pared later thanks to inflows of dollars from exporters and the government."

The benchmark KOSPI stock index fell 3.35 percent to 1,023.2 points, taking a cue Wall Street, which had one of its worst days on Monday. The Dow Jones industrial average dropped 7.7 percent.

Jeon said that a shortage of dollars is also adding to the downward move by making it tough for banks and exporters to service debts and pay for their business activities, despite the government efforts to pump money into the financial system.

The Bank of Korea, the nation's central bank, earlier said it has supplied $4 billion borrowed from its U.S. counterpart to help dollar-starved local banks under a currency swap deal reached in late October.

Market volatility worsened on growing concerns that the protracted financial turmoil is spilling over into the real economy at home and abroad.

The BOK said that gross domestic product expanded 0.5 percent in the third quarter from three months earlier, the slowest in four years and lower than an earlier estimate of 0.6 percent.

South Korea expects its economy to grow around 4 percent next year, much higher than projections by major think tanks and investment groups. Switzerland-based UBS predicted a contraction. If that forecast is correct, it would be the first time in 11 years the South Korean economy has contracted.

The financial turmoil is taking a toll on exports, the backbone of South Korea's economy, by reducing overseas demand for Korean-made goods. The nation's November exports nosedived 18.3 percent from a year earlier, the steepest fall in nearly seven years.

To revive economic growth, the central bank has cut its key interest rate by 125 basis points to 4 percent since early October and will meet to review its monetary polices on Dec. 11. Experts forecast a further reduction in borrowing costs.

"A rate decision will not likely have a significant impact on the foreign exchange market as interest rate reductions are in line with global efforts to fight a recession," Jeon said. "A collapse of the struggling major automakers in the U.S could have much more influence on the won's future direction as it could rattle the overall global financial markets from the ground."




 

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