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The Korean won hit an 18-month high, tracking the strengthening Chinese currency, and analysts are betting that it may break the 1,120 won mark depending on the upcoming U.S. presidential election results.
The Korean won finished Tuesday up 2.5 at 1,139.5 versus the greenback, closing for the first time at 1,130 levels since April 2019. On Wednesday morning, the won rose 0.32 percent, or 3.60, to 1,135.40.
Analysts say the won could strengthen further as it has broken the psychologically-important 1,140 threshold, with some projecting it to exceed 1,120 next month.
The biggest factor behind the won¡¯s ascent is the rise of the Chinese yuan, according to experts.
The Chinese economy has bounced back from the coronavirus slump while major economies in the United States and Europe have faltered. Government data released Monday showed China¡¯s gross domestic product expanded 4.9 percent in the third quarter compared to a year ago, a sharp recovery from the 6.8 percent contraction in the first quarter. The Chinese yuan against the U.S. dollar rose 6.7 overnight on the news.
¡°Foreign investors in the forex market have a tendency to link South Korea and China economically,¡± said Baek Seok-hyeon, analyst at Shinhan Bank. China is Korea¡¯s biggest trading partner, responsible for a quarter of all its exports.
The Korean economy has also weathered the pandemic better than most developed economies.
Its second-quarter GDP shrank 3.3 percent, but was still the strongest after China among the 14 developed countries in the Organization for Economic Cooperation and Development.
The November U.S. presidential election could be a turning point.
Some investors believe the victory of Democratic nominee Joe Biden could further weaken the U.S. dollar as he has promised a $2 billion stimulus package that could widen the U.S. fiscal deficit.
Park Jeong-eun, analyst at Hana Bank, said that a Biden win is also ¡°raising the appetite for riskier assets,¡± which has been driving the strength of the yuan and won. Trump¡¯s re-election, however, could strengthen the dollar amid prospects of a long drawn-out U.S.-China economic war, he added.
By Lee Sae-ha and Kim Hyo-jin
[¨Ï Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]