The currency strengthened as SK Hynix’s $26.5 billion ADR inflow, foreign stock buying and a Bank of Korea rate increase helped push the dollar-won rate to a two-month low.
The South Korean won extended its July rebound, with the dollar-won exchange rate closing at 1,478.4 on July 20, its lowest since May 11, after falling more than 70 won from the end of June. The move was supported by expectations that SK Hynix’s $26.5 billion ADR proceeds would add dollar supply, a return to foreign net buying of South Korean equities and the Bank of Korea’s July 16 rate increase to 2.75% from 2.5%. The won was the best-performing G20 currency against the dollar this month, gaining 4.75% as of July 20. Sterling rose 1.7%, the Australian dollar 1.63%, the Canadian dollar 1.59%, the euro 0.35% and the Swiss franc 0.24%, while the Taiwan dollar fell 1.63% and the Japanese yen slipped 0.08%. The Bank of Korea’s rate increase narrowed the Korea-US policy-rate gap to 1 percentage point from 1.25 percentage points, while softer-than-expected US consumer inflation reduced expectations for a Federal Open Market Committee rate increase later this month. Analysts said the next test for the won will be South Korea’s second-quarter GDP data, which could reinforce expectations of relatively stronger growth and a reassessment of the currency’s fundamentals if it beats forecasts.