The local currency strengthened against the greenback for two consecutive trading days until Monday on heightening expectations of a thaw in inter-Korean relations after a summit between North and South Korea.

As of the trading session’s close Monday, the US dollar was trading at 1,068 won, according to the Seoul Money Brokerage. The market closed Tuesday due to the Labor Day holiday.

The won-dollar exchange rate dropped 12.9 won from Thursday’s close and 8.6 won from Friday’s close, indicating a strengthening local currency. 

Analysts said the summit between South Korean President Moon Jae-in and North Korean leader Kim Jong-un has contributed to easing geopolitical risks, citing their affirmation of “complete denuclearization” and intention to declare an end to the Korean War during their summit that started Friday morning.

The relief of tension on the Korean Peninsula will pose downward pressure on the foreign exchange rate, wrote Kim Hyun-jin, an analyst at NH Futures, in a note to investors Monday.

“The better-than-expected result from the inter-Korean summit was a cause for decline in the won-dollar currency exchange rate, because of expectation for a stronger won and eased sentiment of foreign investors buying stocks,” Kim wrote.

But Kim added the pace of strengthening of the local currency is unlikely to be maintained, citing local financial authorities’ pressure from the low won-dollar exchange rate and the wait-and-see approach of investors ahead of the release of US economic readings, including inflation data.

The easing geopolitical risks bucked the latest tendency of weakening. Until Thursday’s close, the local currency had weakened for five trading days in a row.

The won-dollar currency exchange rate jumped to 1,080.9 won at Thursday’s close, the highest in a month, up from 1,061.5 won as of April 19. The rate peaked after the 10-year US Treasury yield topped 3 percent for the first time since 2014 on Wednesday.

The strengthening tendency in the Korean won came in contrast to the two previous inter-Korean summits, during which the local currency had weakened against the dollar.

After the first summit took place on June 13, 2000, the Korean won weakened for five consecutive trading days until June 19, 2000. Following the second inter-Korean summit that started on Oct. 2, 2007, the won-dollar foreign exchange rate rose for three straight trading days.

By Son Ji-hyoung 
(consnow@heraldcorp.com)