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Won hikes against USD as investor preference for safe havens weakens

Won hikes against USD as investor preference for safe havens weakens

The Korean won reportedly hiked up against the US dollar on Wednesday, a day after South Korean and US finance ministers stated that they could take steps such as supplying liquidity to help stabilize the foreign exchange market.

The value of the won increased by ₩0.5 per $1 from the previous trading session to end at ₩1,312.9 for $1. The dollar dropped for the third straight trading session after reaching a high of ₩1,326.1 ($1.01) last Friday.

As per brokerage firm-based analysts, this may be related to a sentiment recovery in the preference for risky assets by global investors because of the outstanding earnings reported by significant US companies.

Additionally, it is believed that the agreement reached on Tuesday by US Treasury Secretary, Janet Yellen, as well as South Korean Finance Minister, Choo Kyung-ho, had some influence on the rise in the Korean won.

The finance ministry stated that the two ministers have decided to work close together to help stabilize the forex  market. According to the statement, if necessary, the two parties can conduct various cooperative tasks, like liquidity facilities.

Kim Yoo-mi, research analyst at Kiwoom Securities, stated that the weakening sentiment of investors' preference for safe havens in the financial market could be seen as companies listed on US bourses climbed.

According to an NH Futures analyst, Choo and Yellen's remarks hinting at possible precautionary moves in the foreign exchange market would potentially provide favorable conditions for won-dollar exchange rates, however there was no specific remark about a currency swap contract between the two countries.

The US economy experienced a quick recovery throughout the pandemic recovery period, and thus the dollar continued to climb over the last 1 and a half years before dropping to the ₩1,100 ($0.84 ) level in late 2020.

A significant hiccup in the world's raw material supply, and the crisis between Russia and Ukraine, has added to this year's strong dollar and increasing preference for safe haven.

The weak won has fueled inflation in recent months, as the country has seen a rise in the price of raw materials including crude.

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Meghna Singh

An English Literature graduate, Meghna Singh ventured into the profession of content development to incorporate her knack for writing articles across verticals including technology, healthcare, business, and alike for News Origins and Newsorigins. She has also completed her MBA in Tourism and worked as a content creator in the field of product development.