Korea to take action if currency falls more

South Korea’s finance minister warned against excessively volatile currency moves on Thursday, vowing to take swift action if needed amid the rapid depreciation of the Korean currency against the US dollar.

Financial authorities will bolster efforts to stabilize the financial and foreign exchange market experiencing continued fluctuation stemming from uncertainties over major anticipated US policy shifts as Donald Trump won a second term in the White House.

“As uncertainties remain regarding global economic growth, price trends and monetary policy stances of major countries, along with possible changes in the policy stance of the new US administration, we will closely monitor market conditions with extra attention, centering on the 24-hour joint inspection system of related agencies,” Finance Minister Choi Sang-mok said during a meeting with top officials from the country's central bank, regulatory agency and the presidential office.

Since Trump's victory in the US presidential election last week, the local currency has been hovering around the psychologically significant level of 1,400 won against the US dollar.

“We must make every effort to maintain a coordination and response system according to the contingency plan, and if volatility in financial and foreign exchange markets increases excessively, active market stabilization measures must be implemented quickly and in a timely manner,” Choi told the attendees.

Choi said that the market stabilization programs currently in operation will be extended to the previous level in 2025, including a liquidity supply program worth up to 37.6 trillion won to stabilize the bond and short-term fund markets.

Despite the top economic policymaker's verbal intervention, the Korean currency has yet to start a clear rebound, standing at 1403.6 against the greenback as of 2:00 p.m.

It saw a sharp fall to 1,410 for the first time in two years on Wednesday.

The strengthening US dollar sparks concerns for inflation in Korea, which has stabilized to below the 2 percent level after years of efforts.

High prices coupled with a strong US dollar will deepen concern for Korea’s central bank in weighing the timing for additional rate cuts after lowering the rate by a quarter percentage point in October to end a three-year and two-month rate freeze.

Another factor that worries the Bank of Korea is that the US Federal Reserve is likely to adjust the pace of interest rate cuts due to concern that President-elect Trump's economic promises will cause inflation in the country.

The won has also been under pressure as Republicans are expected to have taken control of both chambers of Congress in the US. This would empower Trump’s policy agenda centering on sweeping tax cuts and greater trade protectionism to keep the US currency strong.

“The news that the Republican Party has taken control of the US Senate and House of Representatives seems to have once again highlighted the negative aspects of Trump's trade in the foreign exchange and bond markets,” said Han Ji-young, a researcher at Kiwoom Securities.

Moon Da-woon, an analyst at Korea Investment & Securities, expected that the US dollar would stay on its uptrend in the fourth quarter.

He revised up the dollar-won forecast to 1,385 from the previous 1,345.

“Until the labor market slows more than expected in the early February employment report or the market's excessive concerns about the Fed's cut path after the FOMC in December are alleviated, there is no material to bring a weakening of the dollar,” he said.

The benchmark Kospi broke its four-day losing streak. The Kospi added 0.5 percent to 2,429.28 as of 2:00 p.m. Institution investors net bought 233.7 billion won while retail and foreign investors sold 9.6 billion won and 263.9 billion won, respectively.