The Korean won strengthened sharply against the dollar on the 22nd, with the exchange rate falling more than 20 won to the 1,350-won range. A flood of dollar selling by exporters converting proceeds ahead of the Chuseok holiday, combined with large-scale dollar sales by foreign institutions, drove the move. Domestic currency market flows led the decline even as the dollar gained ground globally.
The won-dollar rate closed at 1,358.2 won in the Seoul foreign exchange market, down 22.8 won from the previous session. It was the steepest single-day drop since July 8, when the rate fell 29.7 won. The rate touched 1,352.9 won during the session, its lowest level since the 15th.
The rate opened at 1,374 won and extended losses through the morning. With companies selling dollars ahead of the Chuseok holiday and heavy selling led by foreign institutions, the rate quickly broke below the 1,360-won line.
Market participants pointed to a shortage of bids relative to the volume of selling as the main reason for the sharp decline. "An absurdly large volume came out, led by foreign institutions, and that pushed the rate down," a dealer at a commercial bank said. "There were hardly any bids."
Exporters converting dollars ahead of Chuseok also provided a steady flow of supply. Such conversions, which began the previous day, together with net foreign buying of Korean stocks, put downward pressure on the won-dollar rate even before the Seoul session opened.
The Bank of Korea attributed the recent won strength to a sharp reversal but said it does not view the move as an excessive one-way swing. "It is true that the pace of the recent decline in the exchange rate has been fast," Kim Shin-young, head of the central bank's foreign exchange analysis department, said on the same day. "But the recent won strength has an element of reversal, and we do not judge that there has been an excessive one-way tilt."
The central bank said dollar supply in the foreign currency funding market remains ample, as companies have continued net purchases of forward contracts in the third quarter. Against that backdrop, the won-dollar rate is expected to remain heavily influenced by supply and demand factors for the time being, including corporate conversion needs ahead of the holiday and foreign capital flows.
