The Korean won strengthened to its highest level of the year against the dollar during trading on the 26th, driven by a weaker dollar as the yen gained and by month-end dollar selling from exporters. The won pared its advance in the early 1,320s, however, as bargain-hunting dollar buyers stepped in and traders turned wary of possible intervention by authorities.
The won closed at 1,323.1 per dollar in the Seoul foreign exchange market on the 26th, down 1.5 won from the previous session's daytime close. The currency opened at 1,324.0 and firmed as far as 1,320.6 at one point, surpassing the year's strongest level of 1,321.2 set in the 22nd's overnight session.
A softer dollar tied to the yen's advance added to downward pressure on the dollar-won rate, while exporters unloaded dollars ahead of month-end and offshore players also sold the greenback. Bargain-hunting and settlement demand from importers in the early 1,320s capped further gains in the won. Caution over possible smoothing operations by foreign exchange authorities was also seen as supporting the lower end of the range.
Geopolitical tensions in the Middle East, rising international oil prices and net selling of Korean shares by foreign investors all pointed toward a weaker won, but an excess supply of dollars offset those factors. Oil prices climbed and risk aversion persisted as the possibility of renewed conflict between the United States and Iran drew attention.
Expectations of further won strength have also lingered since recent remarks on the currency by Bank of Korea Governor Shin Hyun-song. His comments highlighting dollar inflows from strong exports and the won's undervaluation have reinforced forecasts for a firmer currency, and with trading volumes thin, the exchange rate has been moving largely on actual supply and demand.
Market participants are also focused on this week's Federal Open Market Committee meeting at the U.S. Federal Reserve. The Fed will hold its monetary policy meeting on the 27th and 28th local time and is expected to offer clues on the path for interest rates. A wait-and-see mood ahead of the outcome could limit aggressive directional bets.
