(Bloomberg) -- The won, Asia's best-performing currency last year, may find little standing in its way to a 2008 high, according to Citigroup Inc.
The currency will benefit from a buoyant global economy, while dollar strength will be limited, according to David Um, the managing director of the markets group at Citibank Korea Inc. Meanwhile, North Korea-related tensions will likely have a limited impact unless something unprecedented happens, he said.
“We're still looking for reasons why the dollar-won spot won't fall below 1,000,” Um, who was promoted from head of trading last month, said in an interview last week. The currency last touched that level in July 2008, and closed 0.3 percent lower at 1,066.10 on Monday.
The South Korean currency rose to its highest since October 2014 in early Monday trading before suddenly reversing to a loss, leaving traders speculating that the government bought dollars in the local market. The move was followed by a warning from a foreign-exchange authority official, who said the government will take steps “sternly” in case of one-side moves as the dollar weakens.
The South Korean currency surged almost 13 percent last year, as an expanding trade surplus and the nation's first interest-rate increase in six years boosted its allure.
The gains came despite months of saber-rattling between North Korea and U.S. President Donald Trump. Tension is easing this year after the Communist state accepted a proposal to hold talks with its neighbor on Jan. 9.
“Intensified military conflict seems to be the most expensive option, making the least economic sense to related parties including both China and the U.S.," Um said. The dollar was probably overbought against the won last year amid nuclear and missile tests by North Korea and concern over potential trade protectionism measures by Trump, he said.
While the won will appreciate, Um doesn't expect the same level of gains seen in 2017, he said.
Other comments that Um made:
- “Those who need to sell dollar are the nervous ones,” with many waiting for USD/KRW to rebound to 1,150
- The central bank may raise policy rates at least once in the first half should inflation picks up as expected. More hikes may follow if the pace of price increases accelerates
- Parliamentary election scheduled in June may also have an impact on the foreign-exchange market
To contact the reporters on this story: Hooyeon Kim in Seoul at hkim592@bloomberg.net, Kyungjin Kim in Seoul at kkim245@bloomberg.net.
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Patricia Lui
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