The South Korean currency extended its rally against the U.S. dollar to hit a new high for this year during the session for a second consecutive day on Friday on growing expectations for the local economy partly due to easing geopolitical risk on the Korean peninsula.

On Friday, the Korean won closed at 1,097.5 won against the U.S. dollar, gaining 3.9 won from the previous trading session. The local currency jumped to 1,093 won during the session, which was the highest for this year, after it opened at 1,097 won, the highest since September 2016.

The currency gains came after a series of events a day earlier have allowed investors to restore confidence about the country’s economy. Investors particularly welcomed news that Asia’s fourth largest economy signed a bilateral currency swap deal with Canada and the Chinese government has sent a special envoy to North Korea, as well as looming speculation that North Korea and the United States may begin talks.

An unnamed foreign exchange authority, however, said that the government is closely monitoring the currency market upon concerns that the won’s gain has been too steep in a short term.

Despite the government’s verbal warning, market analysts expect the won is likely to continue to strengthen against the dollar until the end of the year, which would be negative to the Korean economy that depends heavily on exports.

The strong won often stoke worries that it would hurt profitability of exporters because it makes Korean exports more expensive or less competitive in overseas markets.

Seo Jeong-hoon, a researcher at KEB Hana Bank, said that the country’s exports would be hit by the latest gain in the won. In particular, the stronger won could take a heavy toll on those companies that import raw materials before processing and export finished goods, while falling import prices would raise concerns over deflation.

By Kim In-oh and Lee Eun-joo

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