South Korea sold FX worth $8.3bn to stem won weakness

Bloomberg

South Korea ramped up foreign currency sales in the first three months of this year as it stepped into markets to counter the rapid weakening of the won, which has since dropped to a 13-year low.
South Korean FX authorities, including the finance ministry and the Bank of Korea (BOK), sold a net $8.3 billion of their foreign exchange reserves to prop up the currency throughout the first quarter of this year, data released on the central bank’s website showed. That’s the largest amount since at least March 2019 when the BOK started to publish the data.
The won slipped 1.9% against the dollar in the first quarter, and has plunged another 6.7% since to become emerging Asia’s worst performing currency after the yen. Higher energy prices and risk aversion among investors concerned that rapidly rising interest rates will hurt the South Korean economy have sent the won to its biggest monthly decline since 2011.
Since March, the BOK has cited market stabilisation as one of the reasons for the drop in foreign reserves. The currency hoard has been on
a downward trend since
November.
The central bank may have spent a larger sum this quarter as the depreciation of the won accelerated on ballooning trade deficits and the
Federal Reserve’s policy tightening. The BOK’s foreign reserves fell to $447.7 billion in May, the lowest in more than a year.
The bank discloses the net trading amount of official interventions with a delay of three months. Second-quarter data is due for release at the end of September.
Korea denies it seeks to defend particular exchange-rate levels and dubs its trading activities as “smoothing operations” to enhance market stability.
Several Asian nations are tapping into their foreign reserves to shore up their currencies against a strengthening dollar this year. The Fed’s rapid rate hikes and expectations of more to come are also prompting traders to price in the possibility of the BOK raising its key interest rate by a half-percentage point next month.
Korea has built up some of the world’s largest foreign reserves since the 1990s Asian financial crisis when the won briefly halved in value against the dollar.