On Wednesday (August 24), the US dollar was quoted at 1342.1000 against the KRW, an increase of 0.25%. The KRW fell to 1345.80 against the US dollar on August 23, a 13-year low. South Korea, which tends to intervene after verbal warnings, sold a net $8.3 billion in foreign reserves to prop up its currency in the first three months of the year.
For South Korea, the stability of the won is critical because it relies heavily on external sources for energy and other materials needed for exports. Domestic food and transportation prices are also under upward pressure, hit by a weaker won, pushing inflation to a more than 20-year high. Dragged down by the strong dollar and expectations of slowing economic growth in South Korea, the KRW/USD exchange rate fell below the 1340 level, the lowest intraday record since April 29, 2009; The 1340 pass was lost. However, the exchange rate stabilized as the market became wary of the possibility of government intervention in the foreign exchange market.
South Korea’s economy is heavily dependent on exports, and trade is key to South Korea’s economic growth. South Korean companies are widely rooted in global supply chains such as semiconductors and automobiles, so South Korean export data is an important indicator of international economic activity. This year, South Korea is likely to post an annual trade deficit for the first time since 2008 as higher energy and raw material prices push up import costs. Higher prices have weighed on consumer confidence and the global economy has increased downward pressure. These factors may have a negative impact on the recovery of exports, which in turn will lead to a slowdown in economic growth. The South Korean government first raised the possibility of slowing economic growth in the green paper in June, and has made similar comments for three consecutive months.