Korean Won Hits Level for Up to $50 Billion in Pension Sales

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Korean Won Hits Level for Up to $50 Billion in Pension Sales

foreign exchange :: 2024-12-19 :: source - bloomberg

By Daedo Kim

(Bloomberg) -- Korea’s won has weakened to levels that can force the National Pension Service to sell up to almost $50 billion worth of foreign exchange to hedge against losses, according to people familiar with the matter.

Korean Won (Yahoo finance)

The pension service is obligated to hedge up to 10% of its foreign-currency assets if the exchange rate reaches a level that deviates significantly from its long-term average over more than 20 years, the people told Bloomberg, asking not to be named because of the sensitivity of the matter. As of Wednesday’s drop to the lowest since 2009, the 1,450 won per dollar level had breached the NPS’s own internal trigger, according to a formula the people shared with Bloomberg.

‘Substantial’ Flow

“That pension flow would be substantial if that trigger level is real,” said Brad Bechtel, global head of foreign-currency sales and trading at Jefferies LLC in New York. He said most investors had been expecting that the won would weaken against the dollar.

The NPS’s foreign-currency assets totaled $485.5 billion as of the end of September, according to its website.

It’s likely that the NPS will sell more in foreign currency than it buys next year, after recently purchasing $2 billion to $3 billion a month in foreign currency, one of the people familiar said. The fund is the biggest player in the domestic foreign-exchange market, and should it stop buying, weakening pressure on the won is expected to fade.

The won has been the weakest Asian currency this year amid political uncertainty surrounding the impeachment of President Yoon Suk Yeol and an appreciating dollar.

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