By Kim Jae-kyoung
Staff Reporter
The local currency continued losing ground against the U.S. dollar, hitting its lowest level in 45 months, Monday, on the back of a stronger greenback and the central bank's dovish stance in the currency market.
The Korean won closed at 1,078.9 won per dollar Monday, down 16.4 won from last week, the weakest level since it hit 1,081.4 won, Nov. 17, 2004.
The rapid depreciation of the won is the result of a strengthening of the U.S. dollar coupled with the Bank of Korea's (BOK) shift in foreign exchange policy.
``The dollar is up against nearly all currencies. What sets the won apart from most other Asian currencies, however, is that it actually appreciated significantly against the dollar over the last year or so,'' Peterson Institute senior fellow Marcus Noland told The Korea Times.
``So the recent depreciation should be viewed against the background of the previous appreciation,'' he added.
Despite a weakening won, the financial authority limited its intervention, which accelerated the depreciation. Its neutral stance is seen as a big retreat from its heavy intervention position in early July.
Analysts say the BOK is trying not to intervene in the market as there has been growing concerns over dwindling foreign exchange reserves.
``The central bank is trying to moderate the depreciation pace through a smoothing operation instead of heavy intervention,'' Citigroup economist Oh Suk-tae said.
``Given falling reserves, it may be difficult for the central bank to squander more to defend the won.''
The nation's foreign reserves reached $247.5 billion in July, down $10.58 billion from the previous month and the biggest monthly drop since the Bank of Korea began tracking records in 1971. The central bank used the money to protect the local currency
Driven by a stronger dollar, the won is likely to continue losing value for the time being but the trend will not last for a longer period, according to analysts.
``The won is likely to weaken against the dollar for a while, but I don't think that it will depreciate to the 1,100 won level,'' Oh said. ``As soon as the U.S. dollar becomes more stable on the global market, the won will end its weakness.''