The crisis rumors surrounding Credit Suisse (CS), a major Swiss bank, have caused the won-dollar exchange rate to surge by more than 10 won, breaking back into the 1310 won range. This is interpreted as a result of increased preference for safe-haven assets amid growing anxiety in the global financial markets.
On the 16th, in the Seoul foreign exchange market, the won-dollar exchange rate opened at 1,314 won, up 10.3 won from the previous trading day. The exchange rate had fallen to the 1,290 won range recently due to expectations of the Federal Reserve (Fed) slowing its tightening pace following the collapse of the U.S. Silicon Valley Bank (SVB), but it is now showing an upward trend again.
In the early session, the won-dollar exchange rate rose as much as 12.9 won to 1,316.6 won compared to the previous day. As of 9:30 a.m., the exchange rate was recorded in the 1,314 won range.
CS recently disclosed that a "material weakness" was found in internal controls related to accounting in its 2021 and 2022 annual financial statements. Concerns about CS have grown amid the bankruptcies of SVB and Signature Bank, expanding unease across the banking sector.
CS’s stock price plunged about 30% during the European trading session. The fear was heightened by the announcement from CS’s largest investor, the Saudi National Bank (SNB), that it would not provide additional financial support.
As global financial crisis fears emerged, preference for safe-haven assets strengthened. The dollar index, which reflects the value of the dollar against six major currencies, rose 1.04% to 104.672 from the previous close of 103.597.
However, the Swiss National Bank (SNB) announced it would provide liquidity to CS if necessary, somewhat easing the panic. Given the spreading liquidity crisis, many analysts believe that the Fed’s rate hike this month will not be easy.
While the sharp rise in the exchange rate has increased vigilance over intervention by foreign exchange authorities, leading to dollar selling that limits further exchange rate increases, if risk-asset avoidance sentiment spreads and foreign selling expands, it could accelerate won weakness and increase upward pressure on the exchange rate.
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