Bank of Korea says won strengthens as foreign outflows narrow

The Bank of Korea said Thursday that the won strengthened against the US dollar in August as improving supply and demand conditions, driven by an expanding current account surplus and robust economic growth outlook, offset geopolitical risks in the Middle East. The average exchange rate fell to 1,359.4 won per dollar by Sept. 15, a 4.8 percent appreciation from the end of July.

Currency volatility declined, with the average daily fluctuation narrowing to 0.31 percent from 0.53 percent the previous month. Net outflows of foreign investment in domestic securities dropped to $4.5 billion in August from $21.65 billion in July. Equity funds saw a slight return to net inflows of $40 million, supported by strong earnings from U.S. technology firms, while bond outflows widened to $4.53 billion due to deepening incentives for short-term arbitrage trades.

The daily average volume of interbank foreign exchange transactions rose $2.68 billion to $57.23 billion, led by a $20.4 billion increase in spot won-dollar trading. Conditions for external foreign currency borrowing by domestic banks remained favorable, though short-term borrowing spreads widened to 26 basis points as loan maturities extended. The credit default swap premium dipped one basis point to 22.