South Korean Won bounces from lows at 1,550 USD in a suspected intervention

USD/KRW retreat from 1,550 raises speculation about a Korean Won intervention.
Reuters, citing a local trader, suggests that Seoul might have spent "a lot of US Dollars" to shore up the KRW.
A 7.6% weekly decline in the Kospi Index has triggered a strong KRW sell-off from foreign investors.

Guillermo Alcala FXStreet

The Korean Won (KRW) trades higher on Friday after a knee-jerk reaction at the 1,550 level against the US Dollar (USD), triggering speculation about an intervention by the South Korean Ministry of Finance. The pair had been dropping steadily throughout the week amid high KRW outflows and the US Dollar's strength.

Comments from South Korea's Finance Minister Koo Yun-cheol earlier this week, affirming that the current USD/KRW level, at mid-1,500, is excessive, considering the country's fundamentals, have boosted rumours that Seoul might have set the 1,550 level as a line in the sand for intervention.

A Reuters report has endorsed these views, citing a local trader who affirms that there was a lot of US Dollar selling for intervention, and stating that “it looked like authorities drew a line again at 1,550”.

Record KRW net outflows in May

The Won had depreciated by about 1.35% earlier in the week, as foreign investors sold 4.6 trillion Won worth of KOSPI shares. These figures follow a report from the Korea Financial Supervisory Service revealing a record net outflow of 47 trillion Won (USD 30.6 billion) of South Korean stocks in May, amid rebalancing operations, mainly from American and European investors.

Currency analysts from Commerzbank note that the Korean Won is the weakest performer among Asian currencies, which is contributing to boost inflation and forcing the Bank of Korea (BoK) to hike interest rates at its July 16 meeting. BoK Governor Shiun Hyun-song said earlier in June that the bank must hike interest rates “before it is too late” as risks from the financial and housing markets mount.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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