KRW Loses The Most Against USD Among Major Currencies in Feb

[Photo by Yonhap]

The South Korean won experienced the most significant weakening against the U.S. dollar compared to other major currencies in February, due to concerns about rising inflation in the U.S. and weak exports.

Bloomberg reported on Wednesday that in February, the Korean won depreciated by 6.42 percent against the greenback, which was the most significant drop compared to the currencies of 11 other Asian countries. The Thai baht and Malaysian ringgit both fell 6.29 percent, the Chinese yuan fell 2.18 percent, and the Japanese yen fell 4.44 percent against the U.S. dollar.

The Korean won also experienced the most significant decline compared to the currencies of 23 emerging countries, losing more value than the Russian ruble, which fell by 6.31 percent against the U.S. dollar in February.

Most currencies experienced a decline due to a stronger U.S. dollar, as concerns over monetary tightening increased on favorable U.S. economic indicators in February, but the depreciation of the won was more severe.

Experts attribute the won's weakening to the market's low evaluation of the fundamentals of the Korean economy.

"The won plummeted due to projections that the Korean economy will recover at a slower pace than others, mainly due to weak exports," said Moon Jeong-hee, the chief economist at KB Kookmin Bank.

In February, Korea's exports fell for the fifth consecutive month, primarily due to weak demand for key semiconductor products. The country has also incurred a trade deficit for 12 consecutive months since March of last year. While the International Monetary Fund (IMF) raised its global economic growth forecast for this year to 2.9 percent from the earlier 2.7 percent, it revised down Korea's forecast to 1.7 percent from 2.0 percent.

The yuan [Photo by Kim Ho-young]

Baek Seok-hyun, an economist at Shinhan Bank, explained that the yuan strengthened against the U.S. dollar in January due to expectations for China's economic recovery, which also contributed to the won's appreciation. However, the market eventually realized that Korea's exports are no longer solely reliant on China, leading to a weaker won.

Additionally, the yuan's depreciation against the U.S. dollar due to deteriorating relations between China and the U.S. also contributed to the won's decline.

The rising volatility in the market is also a concern.

In January, the Korean won appreciated by almost 50 won ($0.038) to 1,220 won per U.S. dollar, up from 1,270 won, due to strong foreign net buying in the local stock market and expectations that the U.S. would end its tightening policy.

However, by the end of February, the won had weakened by more than 100 won against the U.S. dollar, to 1,320 won.

There are concerns that a foreign capital outflow could further depreciate the won's value. If the U.S. Fed significantly increases its policy rate from March, foreign investors may withdraw their funds from the Korean market due to the increased interest rate gap between the U.S. and Korea.

In an effort to protect the economy, the BOK (Bank of Korea) maintained the base rate at 3.5 percent last month, which resulted in fluctuations in the exchange rate.

After the BOK announced its rate freeze on February 23, the Korean won depreciated by nearly 2 percent over three sessions, breaching the 1,320 won threshold for the first time in three months.

Foreign investors also sold a net total of 913.9 billion won in Korean shares over those three sessions.