South Korea's NPS Resumes FX Hedging to Defend Won at ₩1,480 Level
South Korea's National Pension Service (NPS) has resumed strategic FX hedging via a currency swap with the BOK to defend the won as the exchange rate neared a 16-year low.
Is the Korean won's freefall finally over? South Korea's financial authorities are deploying their biggest player—the National Pension Service—to stabilize the currency after it flirted with a 16-year low. According to Yonhap, the NPS has reportedly resumed its strategic foreign exchange hedging operations after extending its currency swap agreement with the Bank of Korea (BOK) for another year.
Won on a Rollercoaster: The Battle for the ₩1,480 Line
The won has been under persistent pressure, slipping below the psychologically important 1,450 level in November. On Tuesday, the currency weakened to 1,483.6 won per dollar, nearing its lowest point in about 16 years. In response, authorities issued a strong verbal intervention, calling the won's weakness "excessive" and promising a "strong" commitment to stabilize the market.
How the NPS Eases the Dollar Squeeze
The mechanism is a powerful tool for easing demand pressure on the exchange rate without directly intervening in the spot market. The NPS provides won to the Bank of Korea in exchange for U.S. dollars. It then uses these dollars for new overseas investments or sells them to hedge existing holdings. This process effectively makes the NPS a net seller of dollars, increasing supply in the market and supporting the won.
Outlook and Risks for Investors
The NPS's intervention sends a strong signal of stability to the market in the short term. This could help cool import-driven inflation and improve foreign investor sentiment in the local stock market. However, investors should remember that the won's fundamental direction remains tied to global macroeconomic factors, particularly U.S. monetary policy.
This measure is aimed at short-term market stabilization. The long-term trend of the currency is still subject to global economic conditions and can remain volatile.
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