"The foreign exchange authorities probably took actions to show that they will not allow the won to rise beyond the 1,050 level," one trader told Reuters. The local currency touched as high as 1,058.8 against the greenback in early trade on Monday, its highest intraday level since October 2014. The won then sharply extended losses to 1,069.9, while ending its trade at 1,066.
A finance ministry spokeswoman declined to comment on the government's suspected dollar buying. South Korea is on the US Treasury's list of countries to be monitored to see if they are manipulating their currencies. They can be labelled manipulators if they have a large current account surplus overall, or a large bilateral trade surplus with the US or make heavy one-sided intervention in their currency market.
In October, the Treasury's semiannual report kept South Korea on its monitoring list, along with China, Japan, Germany and Switzerland. Several foreign exchange dealers in Seoul said they believed the amount of dollars authorities bought on Monday was about $1.5 billion.
But Monday's dollar buying will not increase the chance the US labels South Korea a currency manipulator, analysts said. "Being designated as a currency manipulator is not solely decided by just one occasion like today," said Jung Sung-yoon, a foreign exchange analyst at Hyundai Futures.
"Today's smoothing operation seems one of the most powerful one, but it's still not enough for South Korea to be designated as a currency manipulator as there weren't such actions throughout last year," he added. During 2017, the won was Asia's top gainer against the dollar, with a rise of 12.8 percent.
A senior Korean foreign exchange official who did not want to be named said the won's sharp rise in recent weeks was due to dollar weakness.