The won-dollar exchange rate rose for the first time in eight trading sessions.
The won closed at 1,386.1 per dollar in the Seoul foreign exchange market on the 25th, up 3.7 won from the previous day. Early in the session, the rate fell to 1,378.9 as month-end exporter dollar sales concentrated in the market, but it rebounded in the afternoon as foreign selling of local stocks combined with broad dollar strength.
The won-dollar rate had fallen sharply since mid-month, dropping below the 1,400 mark. Over the two days through the 25th, the rate twice tried to break below 1,380 during trading but ultimately closed in the 1,380 range, confirming support at that level.
Foreign selling of stocks added upward pressure on the won-dollar rate. Foreign investors sold a net 3.8206 trillion won on the KOSPI on the 25th, marking a second straight day of selling exceeding 3 trillion won. The KOSPI plunged during the session but recovered its losses in the afternoon to close up 0.68% at 6,742.74.
The Bank of Korea Monetary Policy Committee's rate decision on the 27th is another variable that will shape near-term direction. With market participants limited in building aggressive positions ahead of the committee meeting, attention is on whether the rate will confirm downside support in the 1,380 range.
Separately, Barclays assessed that the South Korean government's reform scope regarding the Future Response Fund (FRF), transfers to local governments and an overhaul of education grants would be larger than initially expected. As a result, it said it is difficult to expect government bond issuance to shrink as much as previously anticipated. However, it noted that the key question is whether the larger Future Response Fund can be used to ease future fiscal stress.
