Exchange Rate Breaks 1,320 Won Level for First Time in 13 Years... Sharp 14 Won Rise Despite BOK Big Step

[Image source=Yonhap News]

[Asia Economy Reporter Myunghwan Lee] On the 15th, the won-dollar exchange rate rose to the 1,326 won level, setting a new intraday high once again. It was the first time in 13 years and 2 months since April 30, 2009, when the exchange rate surpassed 1,320 won during trading, reaching 1,325.0 won (based on the high price).

On that day, in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,326.1 won per dollar, up 14.0 won from the previous day's closing price. Although the Bank of Korea's Monetary Policy Committee decided on June 13 to raise the base interest rate by 0.50 percentage points in a big step for the first time ever, it was insufficient to curb the rapid rise in the exchange rate.

The exchange rate opened at 1,318.0 won, up 5.9 won from the previous day's close, and surpassed 1,320 won within about 7 minutes. The exchange rate continued to face upward pressure, reaching a high of 1,326.7 won in the afternoon, fluctuated in the mid-1,320 won range until the end of trading, and closed at the 1,326 won level.

Based on the closing price, this is the highest level since April 29, 2009, during the financial crisis, when it was 1,340.7 won. The previous record high (based on the high price) of 1,316.4 won recorded on the 12th was also broken again after just three trading days. The daily increase was the largest since the 15.6 won rise on the 29th of last month.

The sharp rise in the exchange rate on this day was due to the strength of the dollar. The dollar's surge occurred as the U.S. Federal Reserve (Fed) is increasingly likely to accelerate interest rate hikes to curb inflation.

The U.S. Consumer Price Index (CPI) for June rose 9.1% compared to the previous year, and the Producer Price Index (PPI) for June also increased by 11.3% year-on-year, marking the highest level in three months. With U.S. wholesale prices also showing an increase rate in the 11% range, the market expects the Fed to continue its high-intensity tightening.

China's second-quarter Gross Domestic Product (GDP) growth rate, announced in the morning, was only 0.4%, falling short of the expected 0.9%. This raised expectations that China would implement economic stimulus measures, leading to a brief strengthening of the yuan and a seeming stabilization of the won-dollar exchange rate. However, as the yuan weakened again, the exchange rate resumed its upward trend.