A screen at the Korea Exchange Bank in Euljiro, Seoul, shows the value of the won against the dollar dropped to 1,172.80, influenced by the eurozone crisis on May 18. The won dropped to 1185.50 at the end of last week’s session, the lowest level for the past seven months. / Korea Times photo by Cho Young-ho

By Kim Tae-jong

The Korean won has continued to lose footing against the U.S. dollar as a growing number of global investors dump local shares and convert won into dollars with their appetite for risk assets diminishing amid renewed fears over the eurozone crisis and the recovery of the world’s largest economy.

The value of the won against dollar closed at 1,185.50 Friday, the lowest level in the past seven months. Concerns sparked over the possibility that it could further fall below the psychologically-important 1,200 mark.

Experts said the depreciation is largely attributed to the fact that investors prefer less risk assets during the eurozone crisis and prolonged global recession. They forecast the currency volatility will continue for a while. They forecast that the exchange rate will hover around 1,200 won.

“The currency market reacts very sensitive to the eurozone factors,” Kim Young-jun, annalist of SK Securities, said. “The volatility in the market will continue at least until the middle of June, and the market will stabilize as soon as the fear for the global credit crunch eases.”

The value of the won has been falling since it hit the year’s high of 1,116 on Feb. 29.

But market insiders forecast that the depreciation of the won will have a limited impact on the Korean economy.

“The depreciation of the won is largely due to foreign capital flight as foreign investors withdrew their investments here due to the eurozone crisis,” Kim Seong-bong, annalist of Samsung Securities, said. “But the impact by the depreciation will be limited as it has nothing to do with on the health of the Korean economy. And we have enough foreign exchange reserves, and companies will not collapse or anything.”

Many experts also point out that there is a slim chance for a sharp depreciation of the won, citing the fact that Minister of Strategy and Finance Bahk Jae-wan publicly said the government will intervene to maintain stabilization of the currency market in time of crisis.

In his contributing story to the Wall Street Journal, Bahk said, “the country's foreign currency reserves have grown substantially and the ratio of national debt to GDP is only one-third of the OECD average, and so if the European crisis spreads, the government can take more active countermeasures than it did in the past.”

But this has been long criticized by the U.S. government, saying intervention by Seoul has helped keep the won currency undervalued by some measures.

The Treasury Department said in its recent reports on currency that the U.S. will continue to press South Korea to limit foreign-exchange interventions "to the exceptional circumstances of disorderly market conditions and adopt a greater degree of exchange rate flexibility."