[King Dollar's Bombardment] 1400 Won, 150 Yen, 7 Yuan

Dollar Strength Raises Currency Risk Alert in Major Asian Countries
Improvement Possible Only After Assessing US Inflation and Tightening Resolve

[Asia Economy Reporter Hwang Junho] Amid the King Dollar phenomenon, major Asian currencies have simultaneously reached critical levels. Exchange rates such as KRW/USD, JPY/USD, and CNY/USD are each approaching thresholds of 1,400 won, 150 yen, and 7 yuan, levels that could trigger concerns in financial markets due to the strong dollar. Especially since there are no variables to stop the 'King Dollar,' worries about further depreciation of major Asian currencies are growing.

According to Seoul Foreign Exchange Brokerage on the 8th, the exchange rate closed at 1,380.8 won, down 3.4 won from the previous trading day's closing price of 1,384.2 won. This was largely due to the dollar taking a breather the day before. The Japanese yen/USD rose 1.25 yen to 144.50 yen compared to the previous day, while the Chinese yuan/USD fell 0.12% to 6.9574 yuan.

However, the dollar, which had briefly paused the day before, is rising again. The dollar index surpassed the 110 mark again on the 8th (local time). Although the domestic stock market was closed due to the Chuseok holiday, concerns over the strong dollar are growing once more.

1,400 won

On the 5th, ahead of the Chuseok holiday, cash transport personnel at the Bank of Korea's Issuance Department in Gangnam-gu, Seoul, are conducting the release operation of Chuseok funds to be supplied to commercial banks. Photo by Joint Press Corps

The won's current account surplus narrowed to 1.09 billion dollars in July, increasing the likelihood of a deficit in August. The goods balance recorded a deficit of 1.18 billion dollars in August, further fueling the possibility of a deficit. If the current account shows a deficit in August, it will be the first current account deficit since 2012.

Since the current account trend is a significant factor affecting the won exchange rate, it could further increase downward pressure on the won. In the past, when the domestic current account deficit trend persisted, the won experienced increased depreciation pressure. Even if the semiconductor industry were strong, a reversal might be possible, but the sharp downturn in the ICT industry cycle, centered on semiconductors, is also a burden on the won's value.

150 yen, 7 yuan

[Image source=Yonhap News]

Despite the Chinese government's intervention in the foreign exchange market (a 2 percentage point cut in the foreign currency reserve requirement ratio), the yuan's value continues to decline sharply. Although the foreign currency reserve requirement ratio was lowered to stabilize the yuan's depreciation, the effect did not materialize.

Lockdown measures in major cities continue, and concerns about the Chinese economy have not eased. At least the export sector, which had supported the economy, is expected to slow down significantly from the fourth quarter of this year due to increased uncertainty in the European economy.

The strong zero-COVID policy, which is likely to continue until the Party Congress, is expected to weigh on the Chinese economy and the yuan by inevitably expanding the contraction in domestic consumption and the real estate market. China's export growth rate in August was 7.1% year-on-year, significantly below the market expectation of 12.5%.

Europe is also facing its worst phase. Although European natural gas prices have fallen somewhat from their peak, they still show unstable fluctuations. The energy supply disruption caused by Russia's cutoff is acting as a major negative factor not only for the euro but also for the pound sterling.

US economic media Bloomberg and others reported that the European think tank Bruegel, after compiling announcements and data from various governments, estimated the support amount by European countries to prepare for energy price increases this winter at a minimum of 379 billion euros (about 51 trillion won), and expects this to increase further. Considering that the EU's annual GDP in 2021 was 12.2 trillion euros, 379 billion euros corresponds to about 3.1% of total GDP.

13th, 20th-21st

[Image source=Yonhap News]

Researcher Park Sang-hyun of Hi Investment & Securities predicted, "The US August Consumer Price Index to be released on the 13th and the Federal Open Market Committee (FOMC) meeting scheduled for the 20th-21st will be short-term turning points for the foreign exchange market."

Considering the current global conditions, it is difficult to stop the 'King Dollar' phenomenon with factors or variables other than US economic indicators, and since European energy risks and Chinese economic risks are unlikely to ease in the short term, it is important to observe US inflation and the intentions of Jerome Powell, Chairman of the Federal Reserve.

Researcher Park emphasized, "If strong hawkish voices persist at the September FOMC meeting, the King Dollar is likely to continue, and the won, yen, and yuan could each continue to rise beyond 1,400 won, 150 yen, and 7 yuan per dollar, respectively."