Won Falls, Then Gains on Government Support

In August, we reported that South Korea’s forex reserves had shrunk more than $10 billion to brush a 15-month low. One explanation for the drop off was that officials were selling off their holdings in hopes of stabilizing the won and steadying inflation. Recently, however, the won reached a four-year decline, making it one of the poorest-performing Asian currencies.

The month of September was especially unkind to the won in currency trading due to global financial tumult and exacerbated by the U.S. financial sector bailout. In late September, the won hit a five-year low against the USD, down 9.8% from August. Another record account deficit and a fall in factory outputs also battered the won.

However, an early October meeting among financial regulators helped the won not only pare its losses but also complete its biggest jump since March 1998. As Deputy Finance Minister Shin Je Yoon promised that the government would check for speculative forces in the market, the won clinched a 5.4% gain against the U.S. dollar, easing the impact of the first full October week’s overall 6.5% decline, Bloomberg reports. The won continued to gain through mid-October, paring its yearly losses to 23%. However, this was not enough to move it out of its position as the hardest hit of Asia’s 10 most traded currencies this year.