Expectations for Korea-US Currency Swap... Won-Dollar Exchange Rate Returns to '1260 Won Range'

[Image source=Yonhap News]

The won-dollar exchange rate fell back to the 1,260 won level on the 20th. This decline is interpreted as a result of expectations that the European Central Bank (ECB) is likely to raise interest rates, coupled with hopes that South Korea and the United States may announce measures to strengthen currency cooperation during their summit.

On the morning of the day at the Seoul foreign exchange market, the won-dollar exchange rate was 1,267.9 won, down 10.10 won from the previous day's closing price. The opening price was 1,267 won, down 10.7 won from the previous trading day.

The exchange rate had fallen for four consecutive trading days, dropping to the mid-1,260 won range, then rebounded the previous day to the high 1,270 won range. However, downward pressure increased on this day, pushing it back down to the 1,260 won level.

The release of the ECB's hawkish monetary policy meeting minutes strengthened expectations that the ECB will raise interest rates in July, which is seen as contributing to the dollar's weakness.

The dollar index, which measures the value of the dollar against six major currencies, recorded 102.75 on the 19th (local time), down 1.07% from the previous session. The three major U.S. stock markets also declined due to poor corporate earnings resulting from rapid inflation.

Attention is also focused on whether South Korea and the U.S. will present cooperation measures equivalent to a currency swap to stabilize the foreign exchange market at the South Korea-U.S. summit held on the 21st.

Kim Tae-hyo, First Deputy Director of the National Security Office, said at a briefing on the 18th that when asked whether the resumption of a currency swap between the two countries would be discussed at the summit, "Discussions are being held on the premise of stabilizing the international financial and foreign exchange markets and smooth and prompt cooperation between South Korea and the U.S."

A currency swap is a foreign exchange transaction in which two parties exchange their currencies at an agreed exchange rate on the contract date at a certain point in time. Recently, as the won's weakness intensified and the exchange rate surged, voices have emerged in the market suggesting that a currency swap agreement should be concluded.