South Korea and the United States agreed to “consult closely on foreign exchange market developments” after the first summit between Presidents Yoon Suk-yeol and Joe Biden on Saturday in a rare joint verbal intervention at a time the Korean won has been hovering at its weakest since the wake of global financial crisis.

“To promote sustainable growth and financial stability, the two Presidents recognize the need to consult closely on foreign exchange market developments,” according to the joint statement after the first summit meeting in Seoul between Yoon, two weeks into his office, and Biden who proclaimed elevation of bilateral ties to a “global comprehensive strategic alliance.”

The Korean government had earlier said that “substantial discussion on dollar exchanges similar to a currency swap is taking place between Korea and the U.S.”

The “substantial discussion” wrapped up by including a declaratory statement instead of specific action plan with hopes of a verbal impact.

The declaration underscores the “deep interest” by the two leaders in stability in the foreign exchange and other financial markets, explained Wang Yun-jong, presidential secretary for economic security.

Whether follow-up actions in the form of a currency swap between Korea and the U.S. can take place is uncertain as it is an affair of the central banks with independent decision-making function.

“A renewal of a Korea-U.S. currency swap can ease foreign exchange volatility to some extent, but it won’t be able to change the trend (from U.S. dollar strengthening),” said a senior official from the Bank of Korea who asked to be unnamed.

The U.S. Federal Reserve in the process of normalizing ultra-loose policy of the pandemic period cannot easily make an exception for the Korean won, he added.

The monetary policy board of the BOK is widely anticipated to deliver back-to-back rate hike on Thursday amid high inflation and the U.S. Fed.’s aggressive tightening pace.

It will be the first time in nearly 15 years for the central bank to raise rates for two straight months if it raises the base rate by another 25 basis points this week to 1.75 percent versus 0.75~1.00 percent in the U.S.

The BOK is expected to also lower its growth and inflation target for this year amid rising raw materials prices and supply chain setback.

By Ahn Byung-joon and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]