[Chaotic Currency Tech Tribe] Screams Over Volatile Exchange Rates... Strategies for Navigating Rapid Changes

"Exchange Rate Expected to Remain Stable for the Time Being... Fixed Deposits Effective if Selling Timing is Missed"

[Asia Economy Reporter Yu Je-hoon] The won-dollar exchange rate, which once soared to the mid-1400 won range, is showing sharp volatility, causing increasing confusion among forex investors seeking exchange gains. Experts advise caution in additional dollar purchases and suggest that investors who missed the selling opportunity should wait by using foreign currency time deposit products.

On the 6th, the won-dollar exchange rate closed at 1,318.80 won in the Seoul foreign exchange market. This is an increase of 26.20 won compared to the previous day. After falling below the 1,300 won level at 1,299.70 won on the 1st, it rose back to the 1,300 won range in just five days.

Last month, the exchange rate showed a sharp decline from 1,417.20 won at the beginning of the month to 1,318.80 won at the end. This was due to the U.S. October inflation rate announced on the 10th being 7.7%, lower than the market expectation of 7.9%, raising hopes for easing inflation and the U.S. Federal Reserve's (Fed) tightening stance.

As the strong dollar showed signs of fading, forex investors hurriedly started selling. According to the monthly dollar sales and purchases at a commercial bank last month, until early last month when the won-dollar exchange rate hovered around 1,400 won, dollar purchase amounts exceeded sales, but from mid-last month, a reversal began. On the 11th, when the won-dollar exchange rate was 1,318.40 won, dollar sales amounted to about 3.65 million dollars, and purchases were 1.97 million dollars. On the 17th, when the rate was 1,339.10 won, the gap widened further to 6.16 million dollars and 1.2 million dollars, respectively.

This is interpreted as market expectations that the U.S. interest rate hikes are nearing their end. Earlier, the October U.S. inflation rate announced on the 10th was 7.7%, below the market forecast of 7.9%, increasing expectations for easing inflation and tightening policies.

However, recently, the exchange rate, which had fallen to the 1,200 won range, has been rising again, increasing the concerns of forex investors. This is due to the spread of forecasts that the U.S. will continue its high-intensity interest rate hike policy. The Wall Street Journal (WSJ) recently reported that the Fed is expected to take a big step by raising the benchmark interest rate by 0.50 percentage points at this year's last Federal Open Market Committee (FOMC) meeting.

Experts advise caution in additional foreign currency investments. Kim Seung-hyuk, a researcher at NH Futures, said, "Although there are forecasts in the market that inflation will eventually decrease next year and the economy will have a soft landing, recent data such as the U.S. Institute for Supply Management (ISM) manufacturing Purchasing Managers' Index (PMI) for last month exceeding market expectations indicate continued economic strength, and there are even forecasts that the Fed's interest rate ceiling could exceed 5.0~5.5%, creating a noisy situation." He added, "Since the Fed's ultimate goal is a pivot (policy shift), the won-dollar exchange rate is expected to show a downward trend in the long term, but this month it is likely to fluctuate between 1,300 and 1,330 won."

Kim Hak-soo, team leader at Hana Bank Apgujeong PB Center, said, "Although the won-dollar exchange rate, which soared to the mid-1,400 won range, was somewhat overshooting (a temporary sharp rise in asset prices), the basic interest rate differential between Korea and the U.S. continues, so it is expected to fluctuate between 1,250 and 1,350 won for the time being." He advised, "It is necessary to be cautious about additional dollar purchases until the Fed returns to a easing stance."

What about investors who bought dollars at the peak? The financial sector advises that foreign currency time deposits can partially protect against exchange losses. Recently, with rising deposit interest rates in the banking sector, it is not difficult to find foreign currency deposit products with interest rates around 5%. For example, KB Kookmin Bank's 'KB Kookmin UP Foreign Currency Time Deposit (Dollar)' offers an annual interest rate of 5.19% for six months, and Shinhan Bank's 'Shinhan Foreign Currency Deposit' offers 4.94% for 12 months.

A representative from a commercial bank said, "Many investors sold dollars at the 1,400 won level and made exchange gains, but for those forex investors who did not, 'holding on' is also a card worth considering." He added, "Currently, foreign currency time deposit product interest rates are around 5%, so even if exchange losses occur over time, after one year, the interest can compensate for about 70 won."