The won strengthened against the dollar for a fifth consecutive session to a new high for the year, even after the Bank of Korea left its policy rate unchanged. Governor Shin Hyun-song described the recent decline in the won-dollar rate as a correction of an abnormal situation, but declined to say directly whether the slide amounts to one-sided movement, stressing instead the importance of policy predictability.
The won-dollar rate closed daytime trading at 1,324.2 won on the 22nd in the Seoul foreign exchange market, down 1 won from the previous session. The rate opened at 1,327.5 won and moved little until it turned lower around 10:30 a.m., after the Monetary Policy Board released its policy statement. It fell as low as 1,322.7 won around 12:31 p.m.
Both the daytime closing level and the intraday low were the lowest since Oct. 2, 2024. The rate has fallen through October, setting a new low for the year in each of the past five sessions.
The board left the base rate at 3.00% as the market had expected. Still, it kept its tightening stance, saying in the statement that it needs to assess how internal and external risks develop and the impact of its two rate increases. The decision is seen as an effort to sustain tightening in light of strong growth and upward pressure on prices, while slowing the pace to gauge the effects of the back-to-back increases in July and August.
At a press briefing the same day, Shin characterized the recent decline as a reversal of the won's undervaluation. "The high exchange rate in early summer had quite a few abnormal aspects," he said. "The fairly rapid downward trend in the exchange rate since then is a process of undoing that abnormality." He also said the won remains weak, leaving open the possibility of further gains.
He did not take a clear position, however, on whether the recent sharp decline constitutes one-sided movement. Asked in follow-up questions after the briefing whether the central bank was overlooking exchange rate volatility, and how large a decline it would consider one-sided or excessively volatile, Shin said predictability is what matters. The remarks suggest the central bank is placing more weight on sending consistent policy signals to the market than on assessing the absolute level of the rate or the speed of its decline.
Meanwhile, the dollar index, which measures the greenback against six major currencies, fell 0.201 to 101.501. The won-yen cross rate rose 4.4 won to 842.21 won per 100 yen, while the yen-dollar rate fell 0.92 yen to 157.2 yen.
