- New round of strategic foreign exchange hedging triggered
- Won sharply rebounds from 8-month lows as move caps downside
- Authorities step up broad efforts to stabilise won
SEOUL, Dec 24 (Reuters) - South Korea's national pension fund has initiated a new round of strategic foreign exchange hedging operations on Wednesday, two sources familiar with the matter told Reuters, sending the won to its highest level against the dollar in more than a month.
The National Pension Service, the world's third-largest pension fund with 1,361.2 trillion won ($927 billion) in assets, is a major player in domestic markets.
"Strategic hedging has been initiated," said one of the sources, who declined to be identified due to the sensitivity of the matter.
Another source said: "It is a newly initiated strategic hedging. Strategic hedging, once started, is carried out for a set period, and it is expected to be for a significant period of time."
WON RALLY
The won rallied as much as 2.2% to 1,449.3 per dollar, the highest since November 14, after opening the session at 1484.9, the weakest since April 9.
"Strategic hedging, given its huge size, could cap the upside of the dollar-won exchange rates," one local currency trader said.
The NPS declined to comment on its investment strategies, citing the impact on markets.
The pension fund's move came after the welfare ministry said a day earlier it would conduct hedging operations more flexibly. The ministry oversees the pension fund's investment policies and formed a consultative body with foreign exchange authorities last month to coordinate efforts on the market impact.
BROAD EFFORTS
Recent weakness in the won currency, still down 7% in the second half of 2025, has raised inflation concerns among policymakers, who view increasing overseas investment by the pension fund, retail investors and companies as a drag on the won.
Earlier on Wednesday, foreign exchange authorities issued a warning via text message to reporters that excessive weakness in the won was undesirable.
"It will be soon found that a series of meetings were held and policy measures were announced in recent weeks in preparation to demonstrate the government's strong will and capabilities," they said.
They were also suspected of carrying out dollar-selling intervention in the market, according to local traders.
The presidential office was also closely monitoring the foreign exchange market, a spokesperson said.
The finance ministry, in a separate announcement on Wednesday, rolled out tax policies to spur inflows of assets held overseas, after the chief presidential policy adviser said various measures had been planned to support the won.
The ministry is offering tax benefits to retail investors hedging their overseas stock holdings or selling them to invest back home. It also offered tax incentives to companies repatriating earnings from abroad.
"Taken together, the series of measures will be able to roll back one-sided market expectations for a weak won to some degree," said Park Sang-hyun, an economist at iM Securities.
Last week, South Korea's central bank renewed its $65 billion currency swap programme with the NPS by a year to support the pension fund's hedging operations.
The Bank of Korea also decided to pay interest on financial firms' reserve deposits to make up for temporary losses stemming from the swap line with the NPS, along with other policy tools introduced recently to cap losses in the won.
"In our estimation, the BOK-NPS swap could temporarily reduce to around $5 billion per month of U.S. dollar demand from the spot market considering the case in February-April 2025," Kim Jin-wook, an economist at Citi, said in a report.
Kim forecast dollar-won rates to stabilise at 1,450 over the next three months, citing strong policy signals from the authorities.
($1 = 1,468.7000 won)
Reporting by Yena Park, Jihoon Lee and Youn Ah Moon; Editing by Ed Davies and Shri Navaratnam
Source: Reuters