Expectations for End of US Interest Rate Hikes
Impact of Declining Treasury Yields and Recovery in Risk Appetite
Won-Yen Revaluation at Lowest Since January 2008
The Korean won to US dollar exchange rate fell below 1,300 won as US Treasury yields declined amid expectations that the US Federal Reserve (Fed) will end its benchmark interest rate hikes.
According to the Seoul foreign exchange market on the 6th, the won-dollar exchange rate closed at 1,297.3 won, plunging 25.1 won from the previous trading day. This marks the third consecutive day of decline.
The exchange rate opened at 1,308.0 won, down 14.4 won from the previous day, and initially fluctuated in the 1,310 won range before gradually trending downward to the 1,200 won range. The exchange rate hitting the 1,200 won level at closing is the first time in three months since August 3 (1,299.1 won).
This was due to the decline in Treasury yields and a rise in risk appetite as expectations grew that the Fed would end its rate hikes.
Park Su-yeon, a researcher at Meritz Securities, diagnosed, "At the November US Federal Open Market Committee (FOMC) meeting, the perception spread that the benchmark interest rate would be held steady and further hikes would be difficult. Additionally, October US employment figures, which fell short of expectations, boosted risk appetite in the financial market, causing the won-dollar exchange rate to plunge."
Researcher Park added, "Since 1,300 won did not act as a major support or resistance level, the won-dollar exchange rate is expected to attempt a downward breakout. However, considering that macroeconomic uncertainties have not yet been resolved and it is too early to predict the development of geopolitical conflicts, this is not the start of a full-fledged weak dollar trend."
Park Sang-hyun, a researcher at Hi Investment & Securities, said, "In addition to the decline in US Treasury yields, the complete ban on short selling and the resulting rise in the domestic stock market contributed to the sharp drop in the exchange rate. Foreign investors recorded a net purchase of 704.2 billion won in the KOSPI market in just one day, influencing the exchange rate decline."
However, Researcher Park noted, "Since the won-dollar exchange rate decline was excessive in the short term, it remains to be seen whether it will lead to a sustained downward trend. The domestic economic fundamentals have not yet confirmed strong momentum to support won strength, so the exchange rate is likely to fluctuate around 1,300 won going forward."
At the same time, the won-yen recalculated exchange rate fell 12.55 won to 867.38 won per 100 yen compared to the previous trading day’s 3:30 PM reference price of 879.93 won.
On this day, the won-yen recalculated exchange rate recorded its lowest level at closing since January 15, 2008 (865.28 won).
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