Won soars after China signals yuan rise

By Kim Jae-kyoung
Staff reporter

The local currency rose sharply against the U.S. dollar Monday after China signaled an end to the yuan's two-year-old peg to the greenback Sunday, which many analysts believe will put upward pressure on the Korean won down the road.

The won closed at 1,172 won to the dollar, up 30.6 won from the previous close, the highest in more than a month since it finished at 1,165.1 won on May 19.

The local stock market also enjoyed a sharp rise, with the benchmark KOSPI jumping 27.73 points, or 1.62 percent, to end at 1,739.68. The tech-heavy Kosdaq market also rose by 3.13 points, or 0.63 percent, to finish at 498.36.

Market analysts said that the appreciation was mainly due to the growing possibility of the yuan revaluation coupled with strong foreign buying on the equity market.

"The won gained more ground on expectations that China will revalue its currency. I think that the won will continue strengthening against the dollar until China actually takes action," JP Morgan economist Lim Ji-won said.

"The won-dollar exchange rate is expected to move downward and fall to as low as 1,100 won due to speculation associated with the yuan revaluation," she added.

Bank of Korea Governor Kim Choong-soo also told reporters Monday that a revaluation could strengthen the Korean won against the dollar.

"We will keep a close watch on how the market reacts. But I don't think that the yuan is likely to appreciate sharply as the market has expected the move," he added.

The People's Bank of China, the country's central bank, signaled Saturday a flexible currency policy, raising expectations that China will scrap the dollar peg and allow its currency to appreciate against the greenback.

China's yuan exchange rate hit its highest level against the US dollar in five years Monday. The yuan jumped to 6.8089 to the dollar on the nation's main foreign exchange trading market, its highest since July 2005.

kjk@koreatimes.co.kr