South Korean FX Authorities Issue Verbal Warning as Won Closes at 1,517.2 per Dollar

South Korea’s finance ministry and the Bank of Korea issued a joint verbal warning just before the close of daytime trading on May 22 after the won settled above 1,510 per dollar at 1,517.2. The move signaled authorities would not stay on the sidelines even as they maintain a cautious stance, with the recent weakness in the won driven by external uncertainty and foreign investors’ stock selling.

The won closed at 1,517.2 per dollar on May 22, 11.1 won weaker than the previous session. It touched 1,519.4 during the session, briefly nearing the 1,520 level. It was the first daytime-trading close above 1,510 won per dollar in more than 50 days, since May 2.

Foreign-exchange authorities had until now remained cautious about both verbal intervention and direct market action. Unlike last year, when the rise in the dollar-won rate was driven by domestic supply-demand imbalances, the recent jump has stemmed mainly from external uncertainty, including a possible U.S.-Iran war. Officials also had to consider the risk that intervention might fail to stabilize the market while only draining foreign-exchange reserves. “A single comment from U.S. President Donald Trump could roil markets again, so it would be very difficult for the foreign-exchange authorities to get the timing right,” an unnamed foreign-exchange market specialist said.

Still, after the dollar-won rate kept climbing and neared 1,520 during the session, the finance ministry and the BOK stepped in with a verbal warning. The authorities said exchange-rate moves were “excessive relative to the fundamentals” of the South Korean economy and that they would take firm action if needed. The move was widely seen as preemptive after 10 straight days of cumulative foreign selling raised the prospect that the dollar-won rate could remain above 1,500 for an extended period.

Nam Jung-min, Hankyung.com reporter, peux@hankyung.com