South Korean currency's volatility against the U.S. dollar more than doubled early this month on external uncertainties, including the launch of the new U.S. administration and the expected rate hikes in the United States, central bank data showed on Thursday.
The day-over-day move in the won/dollar exchange rate averaged 9.1 won per dollar for the first 10 days of this month, higher than 5.3 won in October, 5.45 won in November and 4.0 won in December, according to the Bank of Korea (BOK).
The daily volatility rate of the local currency versus the greenback was 0.76 percent during the Jan. 1-10 period, higher than 0.47 percent tallied in October and November, and 0.34 percent in December.
Higher volatility came amid growing expectations for economic policies under the Trump administration that is set to be launched on Jan. 20.
As the U.S. Federal Reserve indicated three rate hikes this year after raising its benchmark rate by a quarter point in December, the local currency fluctuated against the dollar.
Higher interest rates in the United States may trigger an abrupt foreign capital outflow from the financial market in South Korea to pursue high-yielding assets.
For the whole year of 2016, 12.98 billion U.S. dollars of foreign capital flowed into the local stock market, but 10.5 billion dollars of foreign funds flowed out of the domestic bond market.
Premium on credit default swap (CDS) for four-year government bonds averaged 45 basis points in December, down from 49 basis points in November.
The measure reflects hedging costs for the bonds, meaning lower costs are higher credibility.
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