Bank of Korea: "Won-Dollar Exchange Rate Decline, Exchange Rate Volatility Also Reduced"

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] As the financial market, which had been shaken by the impact of the novel coronavirus disease (COVID-19), stabilizes, the domestic foreign exchange sector is also generally showing stability, the Bank of Korea announced on the 11th.

In the 'Trends in International Finance and Foreign Exchange Markets since May 2020' released that day, the Bank of Korea stated, "The won-dollar exchange rate rose due to concerns over US-China conflicts, then declined as some concerns eased, US employment indicators exceeded expectations improving investor sentiment, and the US dollar weakened."

On the 9th, the won-dollar exchange rate closed at 1,197.7 won, down compared to the end of April (1,218.2 won) and the end of May (1,238.5 won).

Exchange rate volatility also decreased. The exchange rate fluctuation in May was 4.4 won, and the volatility rate was 0.35%, down from April (5.6 won, 0.46%).

External borrowing conditions improved, with both short- and long-term foreign currency borrowing spreads and CDS premiums declining. The won-dollar swap rate (3 months) widened from 4bp (1bp = 0.01 percentage points) at the end of April to 29bp on the 9th. A Bank of Korea official said, "The swap rate rose due to foreign currency loan supply using currency swap funds with the US Federal Reserve (Fed) and foreign currency funds supplied for arbitrage purposes by offshore investors."

Meanwhile, foreign investors' domestic securities investment funds turned to net outflow in May. Equity funds saw a reduction in outflow due to the reopening of major countries' economic activities, and bond funds continued to inflow, but the inflow scale decreased compared to the previous month.

This content was produced with the assistance of AI translation services.