NPS Halt on Dollar Selling Sparks Won Reversal

The South Korean won saw a sudden reversal in direction on Monday after reaching near two-year highs against the US dollar, following reports that the National Pension Service (NPS) had suspended foreign-exchange hedging activity.

According to Reuters, citing a market source, the NPS halted its foreign-exchange hedging operations. This move abruptly shifted sentiment in the market, where expectations of continued dollar selling by the pension fund had contributed to the won's rapid appreciation.

The won had strengthened sharply earlier Monday despite stronger-than-expected US employment data that increased expectations of another Federal Reserve interest rate hike. The dollar-won rate jumped to around 1,346 won by 12:30 p.m. after falling into the 1,336 range earlier in the session, reversing by roughly 10 won from its intraday low.

The NPS stepped up foreign-exchange hedging in June when the won weakened beyond 1,560 per dollar to its lowest level in 17 years. Dollar selling linked to the pension fund helped support the currency's subsequent recovery, with the dollar-won rate falling 22.9 won to close at 1,512.1 on June 9.