Soaring Exchange Rates, How Far Will They Go... "Upward Trend Continues Amid Uncertainty for Now"

Dollar Strength Expected Due to Risk Asset Aversion Sentiment

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] As uncertainty about the intensity of the U.S. Federal Reserve's (Fed) tightening increases, the won-dollar exchange rate has reached its highest level in 1 year and 6 months since July 16 of last year. With the acceleration of the U.S. tightening monetary policy and geopolitical risks from Russia and Ukraine increasing risk-averse sentiment, the strength of the dollar is expected to continue for the time being.

On the 28th of last month, in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,205.5 won, up 2.7 won from the previous trading day. Experts predict that the won-dollar exchange rate will continue its upward trend for the time being.

Oh Chang-seop, a researcher at Hyundai Motor Securities, said, "Since 2010, the won-dollar exchange rate has been moving between 1,050 and 1,250 won," adding, "The mid-1,205 won level is the highest level reached in terms of current economic conditions." Oh said, "The dollar's strength after Fed Chair Jerome Powell's hawkish (monetary tightening preference) remarks is stronger than expected," and "U.S. monetary tightening is not a short-term issue but one that will have a continuous impact going forward, so the upward trend is expected to continue for the time being."

However, experts put more weight on the possibility that the won-dollar exchange rate will reach the annual high of 1,250 won in the first half of the year and then shift to a downward trend in the second half. Oh said, "At the 1,200 won level, the foreign exchange authorities will intervene verbally and manage volatility, acting as a factor to suppress the upper limit," and "There is a possibility that the authorities will intervene in the foreign exchange market after the Lunar New Year holiday." Jeon Gyu-yeon, a researcher at Hana Financial Investment, predicted, "The possibility of the won-dollar exchange rate breaking through 1,250 won is low," and "It will decline in the second to third quarters."

As external uncertainties increase recently, the Bank of Korea is strengthening monitoring of international financial market trends even during the Lunar New Year holiday. On the 3rd, a situation review meeting will be held chaired by Deputy Governor Lee Seung-heon. Attendees will include the Bank of Korea's Director of Monetary Policy, Director of International Affairs, Director of Financial Markets, Public Relations Officer, Head of Investment Management, Head of Market Coordination Team, and Head of Foreign Exchange Market Team.

Song Dae-geun, head of the foreign exchange market team at the Bank of Korea, said, "At the situation review meeting, we plan to comprehensively discuss the international financial market situation and the impact on domestic financial and foreign exchange markets."