"Will the Strong Dollar Persist? Limited Possibility of KRW-USD Settling at 1400 Won"

On the 29th, Eugene Investment & Securities forecasted that the strong dollar phenomenon is expected to continue, but the possibility of the won-dollar exchange rate settling in the 1400 won range in the near term is limited.

Researchers Heo Jaehwan and Lee Junghoon stated, "Unless there is a sharp economic downturn, it is difficult for the US to accelerate rate cuts, and until there is confidence in a rate cut, pressure for dollar strength is expected to persist."

The two researchers noted, "The biggest reason for the won's weakness is the strong dollar, but it has deepened due to linkage with the yuan and yen," adding, "Unlike the narrowing of the Emerging Market Bond Index (EMBI) spread, only Korea and China saw an increase in major countries' credit default swap (CDS) premiums."

However, they judged that the current situation is better compared to October 2022.

The two researchers explained, "At that time, multiple domestic and international negative factors overlapped, including the Federal Reserve's giant step, concerns about a US recession, the Eurozone energy crisis, China's zero-COVID policy, the Korea Legoland incident, and trade deficits," and diagnosed, "Unless expectations for rate cuts completely disappear or geopolitical instability significantly expands, the possibility of the dollar rising more steeply is limited."

They continued, "Korea's trade balance recorded around 10 billion dollars at the end of 2022, but it has posted a surplus for 10 consecutive months now," and pointed out, "With Korea's exports improving, settling the won-dollar exchange rate at 1400 won is somewhat excessive."

They added, "The recent rise in the exchange rate is merely a result of dollar strength and expanded geopolitical risks, and it is difficult to see it as a situation with high capital outflow pressure like in 2022," and said, "If the won-dollar rate exceeds 1400 won, the likelihood of the National Pension Service releasing strategic currency hedging volumes also increases."

Geopolitical concerns originating from the Middle East remain a major uncertainty. Fortunately, recent US mediation has calmed fears of escalation, but Israel has not withdrawn its plan to attack the Rafah area. The US presidential election issue in the second half of the year also requires caution, as during Trump's first term, the won's value frequently depreciated significantly alongside the yuan due to trade disputes.

The two researchers pointed out, "As an energy-importing country, Korea's won value is vulnerable to fluctuations in international oil prices, and a 50-100% surge in oil prices could adversely affect the US economy," and predicted, "Uncertainty surrounding the US presidential race in the second half of the year may increase again."

Meanwhile, the won-dollar exchange rate closed at 1375.3 won on the 26th in the Seoul foreign exchange market, up 0.3 won from the previous day.