US Infrastructure Investment Bill Passed, Domestic COVID-19 Cases in 2200s... Exchange Rate on the Rise (Update)

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] The won-dollar exchange rate started higher as the strong US dollar trend coincided with a sharp increase in domestic COVID-19 cases.

At 9:24 a.m. in the Seoul foreign exchange market, the won-dollar exchange rate was trading at 1,153.87 won, up 4.07 won from the previous trading day. The rate opened at 1,153.50 won, up 3.7 won from the previous day, and has been moving in the low to mid-1150 won range. The won-dollar exchange rate had risen to around 1,155 won during intraday trading at the end of last month and early this month as the dollar strengthened recently.

Recently, the global financial market has seen a continued strengthening of the US dollar. This is due to widespread expectations that the US will accelerate the timing of monetary tightening through tapering (reduction of asset purchases), and the spread of the COVID-19 Delta variant has increased demand for the safe-haven US dollar.

The US Dollar Index stood at 93.14 as of 8:21 p.m. Eastern Time on the 10th (local time), up 0.04% from the previous close. The Dollar Index, which was in the high 80s in early June, has been on an upward trend through July and August.

Also fueling the dollar's strength is the passage of the $1 trillion infrastructure budget bill by the US Senate on this day. The approval of the budget bill raised expectations that the US economic recovery will strengthen further, causing US Treasury yields to rise (bond prices fall), which in turn has given additional momentum to the dollar. The 10-year US Treasury yield rose about 1.03% from the previous day to 1.356%. The 30-year Treasury yield also traded up 1.01% at 2.004%.

While large-scale fiscal stimulus could increase national debt and negatively impact the dollar's value, the market seems to focus on the stimulus accelerating the US economic recovery. In particular, the relatively faster pace of US economic recovery compared to Europe is interpreted as a reason for the dollar's relative strength.

Meanwhile, the domestic COVID-19 new case count exceeding 2,200 has relatively weakened the won, further driving up the won-dollar exchange rate. Kwon Deok-cheol, 1st Deputy Head of the Central Disaster and Safety Countermeasure Headquarters (CDSCH) and Minister of Health and Welfare, stated at the CDSCH meeting, "As of midnight today, the number of new COVID-19 cases exceeded 2,200," adding, "This is the first time since the initial outbreak in January last year."