South Korea said on Thursday it was watching the US dollar rise sharply against its own currency, with the verbal intervention coming as the won hit a fresh 13-year low against the greenback.
South Korea is revising “contingency plans” related to exchange rate volatility, Finance Minister Choo Kyung-ho told a parliamentary session, the Financial Times reported. Choo said the authorities will take measures to deal with excessive volatility.
The dollar rose against the South Korean currency on Thursday to highs not seen since March 2009. The greenback gained 0.6% to buy 1,399 won. The dollar climbed 18% against its rival during 2022.
Choo’s remarks followed those made by Bank of Korea Governor Rhee Chang-yong in late August. According to CNBC, Rhee said there is a “high chance of increased volatility” in the foreign exchange market whenever the U.S. central bank issues a monetary policy decision.
The dollar has strengthened against many currencies this year largely because the Federal Reserve has aggressively raised interest rates to tame soaring inflation by slowing economic activity. The Fed is expected to raise rates for the fifth time this year next week.
The won weakness, meanwhile, has boosted inflation in South Korea, which imports about 94% of its energy and natural resources, according to Korea’s Ministry of Foreign Affairs. The country will post its first annual trade deficit since 2008 in 2022 as its export growth slows while its import costs rise as global energy prices rise in the wake of Russia’s war on Ukraine.
South Korean inflation hit a more than two-decade high this year, although it slowed to 5.7% in August.