SynopsisSouth Korea’s National Pension Service has suspended foreign exchange hedging as the won strengthened to a near two-year high against the dollar. The move could affect dollar supply and demand in the domestic market, with the pension fund’s large overseas holdings making its currency transactions significant for South Korea’s foreign exchange market.Listen to this article in summarized formatETMarkets.comSouth Korea’s National Pension Service (NPS) has suspended its foreign exchange hedging operations as the won strengthened to a near two-year high, a market source told Reuters on Monday.The NPS, the world’s third-largest public pension fund and a major participant in South Korea’s financial markets, had been conducting currency hedging operations flexibly this year. The fund had also increased its hedging limit as policymakers sought to counter sustained weakness in the won.The suspension could alter dollar supply and demand dynamics in the domestic foreign exchange market. NPS hedging activity typically involves selling dollars, thereby increasing dollar supply in the onshore market.A second market source said the pension fund’s dollar purchases could be conducted through both regular transactions and trades based on the market average exchange rate.The NPS declined to comment on its foreign exchange policies, Reuters reported.Won rallies sharply against dollarThe move comes as the won has staged a sharp rebound, raising concerns among market participants and authorities about excessive one-way volatility.Earlier on Monday, the won strengthened as much as 1.15% to 1,334.7 per dollar, its strongest level since October 4, 2024. It later pared some gains to trade at 1,346.2 per dollar as of 0321 GMT, according to Reuters.The currency has gained about 16% against the dollar so far this quarter, reversing a prolonged period of weakness. Before the recent rally, the won had declined for four consecutive quarters and had fallen to 17-year lows.Authorities intervene amid dollar supply concernsThe sharp appreciation of the won has also come as South Korean authorities have taken steps to manage foreign exchange market conditions.Foreign exchange authorities recently purchased about $20 billion in dollars sold by chipmaker SK Hynix following the company's U.S. share listing, Reuters reported.The NPS’s decision to suspend hedging could therefore have implications for the balance between dollar supply and demand in the domestic market, particularly as the won’s rally has accelerated.NPS holds $1.39 trillion in assetsThe NPS remains one of the most influential institutional investors in South Korea. It held 1,865.6 trillion won ($1.39 trillion) in assets at the end of June, with overseas investments accounting for 54% of its total portfolio.Given the size of its overseas holdings, the pension fund’s foreign exchange transactions can have a meaningful impact on the won-dollar market. The latest shift in its hedging operations comes at a time when currency movements are being closely watched by policymakers and investors amid the won’s rapid appreciation.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless(You can now subscribe to our ETMarkets WhatsApp channel)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless