South Korean Won Falls to Two-Week Low Ahead of Fed Decision
The won weakened to 1,368.6 per dollar as markets anticipated a possible U.S. Federal Reserve rate increase, oil remained above $100 a barrel and foreign investors sold Korean shares.
The South Korean won fell to its weakest level in two weeks on Wednesday as investors prepared for the U.S. Federal Reserve’s interest-rate decision and monitored elevated oil prices amid fighting in the Middle East.
The currency was quoted at 1,368.6 won per U.S. dollar at 3:30 p.m., down 9.2 won from the previous stock-market session’s close. It weakened as far as 1,372.9 won per dollar during morning trading, its lowest point since Sept. 2, before recovering part of the decline.
The move came as traders increasingly expected the Federal Reserve to raise interest rates this week for the first time in three years. A U.S. rate increase can place downward pressure on the won by making dollar-denominated assets more attractive and widening the expected return gap between the two currencies. Markets were awaiting the Fed’s decision for a clearer signal on the direction of global borrowing costs.
Energy prices added another source of pressure. Oil was trading above $100 a barrel as fighting between the United States and Iran intensified in the Middle East. South Korea depends heavily on imported energy, so a sustained rise in oil prices can increase demand for dollars to pay for imports and raise concerns about domestic inflation and the country’s trade balance.
Foreign investors were also net sellers of Korean equities during the regular session, unloading 1.6 trillion won, or about $1.17 billion, of local shares. Such outflows can weigh on the currency when overseas investors convert proceeds from won-denominated assets into dollars.
The currency decline contrasted with a gain in the stock market. The benchmark Korea Composite Stock Price Index rose 1.37 percent to finish at 6,717.97, ending the session higher even as foreign investors recorded substantial net selling.
The combination of U.S. monetary-policy expectations, higher energy costs and foreign equity outflows left the won exposed to renewed volatility. The day’s trading showed that gains in domestic shares do not necessarily translate into support for the currency when overseas investors remain net sellers and global risks dominate positioning. The Fed’s decision and its guidance on the future path of rates are likely to shape near-term currency trading, while developments in the Middle East could continue to influence Korea through oil prices and broader risk sentiment.