Seoul
South Korea’s currency weakened sharply in June, with the Korean won’s real effective exchange rate (REER) falling to its lowest level in more than 17 years amid sustained strength in the US dollar and increased market volatility.
According to data released by the Bank for International Settlements (BIS), the won’s REER stood at 82.99 in June, declining by 1.75 points from the previous month. The figure marked the weakest level since March 2009, when the currency came under pressure following the global financial crisis.
The REER measures the value of a currency against those of major trading partners after adjusting for inflation and is widely used as an indicator of a country’s international price competitiveness.
The decline coincided with a sharp depreciation of the won against the US dollar. On June 30, the currency touched 1,555 won per dollar during intraday trading, its weakest level in over 17 years. The monthly average exchange rate also slipped to 1,527.95 won per dollar, the lowest since February 1998 during the Asian financial crisis.
Analysts attributed the weakness to heavy foreign investor selling in South Korean equities and increased demand for US dollars among domestic investors.
The currency decline came alongside a steep fall in South Korea’s stock market. The benchmark Korea Composite Stock Price Index (KOSPI) dropped 5.72 per cent, ending a three-day winning streak as escalating tensions in the Middle East dampened investor sentiment and triggered a broad market sell-off.
The sharp decline also prompted the country’s stock exchange operator to temporarily suspend programme trading for five minutes in early trading to contain market volatility.