South Korean won hits 15-year low as hawkish Fed, domestic politics weigh

By Jihoon Lee and Yena Park

SEOUL (Reuters) -The South Korean won dropped to its weakest level in 15 years on Thursday, weighed down by risk-averse sentiment after the U.S. Federal Reserve’s cautious stance on more interest rate cuts, as well as domestic political uncertainty.

The won was quoted at 1,449.9 per dollar in onshore trade as of 0234 GMT, after opening the session at 1,453.0 per dollar, 0.96% lower than the previous day and the weakest since March 16, 2009.

The U.S. central bank cut interest rates on Wednesday, as expected, but Federal Reserve Chair Jerome Powell said more reductions in borrowing costs now hinged on further progress in lowering stubbornly high inflation.

Powell’s hawkish stance pushed up the dollar and added to downward pressure on the won, which had already been weighed down by domestic political turmoil after impeached President Yoon Suk Yeol’s short-lived martial law attempt earlier this month.

Taking into account the negative economic impact of the Dec. 3 martial law order, the Bank of Korea flagged on Wednesday downside risks to its economic growth forecasts for this year and next year.

So far in December, the won has weakened 3.9% against the dollar, extending losses for a third consecutive month.

The won, down 11% year-to-date, is the worst performing emerging Asian currency of the year and is set to record its worst year since 2008.

Prior to market open, South Korea’s finance minister said the government and the central bank would swiftly and boldly deploy measures to stabilise financial markets if volatility was seen as excessive.

“It is suspected that authorities are defending the 1,450 figure, making it difficult to short the won around the level,” one local currency trader said.

To help ease pressure on the local currency, the country’s financial regulator asked local banks on Thursday to flexibly manage foreign exchange transactions and loans.

In the stock market, the benchmark KOSPI dropped 2%, as foreigners sold local shares.