The South Korean won rose this week against the US dollar to levels not seen since 1997's Asian financial crisis, making the country's exports less competitive and slowing economic growth.

"The dollar's weakness is a global trend," Rhee Yeung-kyun, assistant governor at the Bank of Korea, said on Tuesday. South Korea's GDP growth may slow to 4 per cent in 2005 from 5 per cent this year as export growth decelerates, the Maeil Business Newspaper said on Tuesday, citing Finance Minister Lee Hun-jai, reported China Daily Thursday.

"Although the Bank of Korea said that market forces still determine the exchange rate, we suspect that it will be difficult for the authorities to allow the won to appreciate much further without further strengthening from the Japanese yen," Joseph Lau, a Hong Kong-based economist at Credit Suisse First Boston, said in a note to clients on Tuesday.

The chart of the day showed the dollar-won pair. The won, at 1,096 to the dollar, has strengthened beyond levels seen in 2000, and has retraced much of the significant depreciation of late 1997.

The currency on Monday climbed 1.1 per cent to 1,092, the largest advance in more than a year and highest since November 24, 1997. From December 1, 1997 to a peak on December 23 of that year, the dollar-won depreciated 70 per cent.

Bank of America foreign exchange strategists suggest "a possibility of a deal" between the Bank of Korea and the country's Ministry of Finance and Economy.

On November 11, South Korea's central bank surprised markets by reducing a key lending rate a quarter point; a move consistent with what Bank of America calls a "dire economic outlook."

Simon Flint and Sameer Goel, Singapore-based foreign exchange strategists at Bank of America, consider a possibility that recent won appreciation was "allowed" by the Finance chiefs in return for cutting rates. In their November 11 note, Flint and Goel call important Governor Park Seung's comment that "the surge was a key factor in the rate decision."

Korea's won does not move only against the dollar. Government officials must consider the won's value against their neighboring economic powers, Japan and China. As Lau suggests, Korean officials may hope for a continuing advance in the yen versus the dollar to assist in a pan-Asian, not Korea-specific solution to dollar weakness.

Source: China Daily