Won-Dollar Exchange Rate Closes at 1299.5 Won... Concerns Over Prolonged US Tightening

[Image source=Yonhap News]

The won-dollar exchange rate surged past 1,300 won amid fears of prolonged tightening by the U.S. Federal Reserve (Fed).

On the 17th, the won-dollar exchange rate closed at 1,299.5 won, up 14.7 won from the previous session in the Seoul foreign exchange market.

On that day, the exchange rate opened at 1,291.9 won, up 7.1 won from the previous trading day, then increased further, reaching an intraday high of 1,303.8 won around midday.

This is the first time the exchange rate has exceeded 1,300 won on a high basis since December 20 last year (1,305.0 won).

The dollar's value rose as expectations grew that inflation would persist longer, following U.S. consumer prices and wholesale prices surpassing forecasts.

The U.S. Department of Labor announced overnight that the Producer Price Index (PPI) for January rose 0.7% from the previous month and 6.0% year-on-year. The month-on-month increase was the largest since June last year.

Last month's Consumer Price Index (CPI) also rose 6.4% year-on-year, exceeding market expectations of 6.2%.

Given the persistent inflation in the U.S., there is a growing analysis that the Fed's tightening measures are likely to be prolonged.

Recently, Fed officials have been making hawkish (favoring monetary tightening) remarks, reinforcing this analysis.

Loretta Mester, President of the Federal Reserve Bank of Cleveland, said regarding this month's Federal Open Market Committee (FOMC) meeting, "We saw compelling economic facts to maintain the pace of a 0.5 percentage point increase."

However, verbal intervention by foreign exchange authorities on the day somewhat slowed the rise in the exchange rate. As caution about the authorities' intervention emerged, the exchange rate fell below 1,300 won in the afternoon and closed just below 1,300 won, as the decline did not deepen due to a supply-demand gap.