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Abu Dhabi, UAEFriday 22 June 2018

South Korea’s currency continues to strengthen amid calls for talks

The won is at its highest level since October 2014

A currency trader talks on the phone near the screens showing the Korea Composite Stock Price Index, right, and the foreign exchange rate at the foreign exchange dealing room in Seoul. (AP Photo/Lee Jin-man)
A currency trader talks on the phone near the screens showing the Korea Composite Stock Price Index, right, and the foreign exchange rate at the foreign exchange dealing room in Seoul. (AP Photo/Lee Jin-man)

Despite being officially at war with its northern neighbour, the recent thaw in relations is likely to boost the South Korean won’s performance in 2018.

Bets are on for South Korea’s won to climb past any weakness as the risk of a conflict eases after Pyongyang called for talks with its southern neighbour, notwithstanding the current standoff with the US, according to Kiwoom Securities Company. The won will be supported by rising demand for South Korean technology exports, quickening economic growth and increased odds of further policy tightening, said Christopher Wong, senior currency strategist at Malayan Banking in Singapore.

“The North Korea risk should now be considered a neutral variable whereas it was seen as a factor” that weakened the won in the past, said Kim Yumi, a market strategist at Kiwoom Securities in Seoul. “Investors can set aside the North Korea risk for now and focus on trends in the dollar and euro.”

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Dollar-won is set to break below a major monthly trendline that began at the start of the global financial crisis in late 2007. On Tuesday, the won vaulted to its strongest level since October 2014, defying warnings the rally may be overdone. It slipped half a per cent Wednesday to 1,066.35 per dollar on concerns the government may intervene.

As Pyongyang’s olive branch doesn’t extend to the US, won bulls may have to put up with more exchanges between the two nations this year. US President Donald Trump was quick to tweet he has a “much bigger and more powerful” nuclear button after North Korean leader Kim Jong Un reminded the US it could strike with a nuclear bomb if necessary.

South Korea’s currency strengthened almost 13 per cent in 2017, its best annual performance since 2004. The gains are even more impressive when one takes into account the slew of North Korean provocation throughout the year, including missile tests and posturing, as well as Trump’s combative retorts.