"The Timing of Won-Dollar Exchange Rate Decline Will Be Delayed"

Daishin Securities forecasted on the 17th that the timing of the decline in the KRW-USD exchange rate would be delayed.

[Image source=Yonhap News]

The recent U.S. Federal Open Market Committee (FOMC) dot plot suggested one interest rate cut within the year, showing a somewhat hawkish stance. However, the May U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) growth rates slowed more than expected, limiting the Federal Reserve's (Fed) influence. Accordingly, Lee Joo-won, a researcher at Daishin Securities, explained, "The pressure for dollar strength originated outside the U.S.," adding, "Political risks in Europe led to downward pressure on the euro, and later in the week, caution from the Bank of Japan (BOJ) Monetary Policy Meeting was introduced."

Lee also mentioned political uncertainties in Europe. He stated, "In last week's European Parliament elections, the proportion of far-right seats increased, highlighting political and economic uncertainties in Europe," and analyzed, "Following the recent rise of right-wing forces in the Netherlands, Germany, and Sweden, France is also expected to see a landslide victory for far-right parties in an early general election, which widened the interest rate gap between France and Germany, exerting downward pressure on the euro."

He added, "Of course, as disinflation progress in the U.S. during the third quarter is confirmed, an environment for interest rate cuts will be established, leading to a reversal and decline in the KRW-USD exchange rate." However, he cautioned, "Considering the upcoming elections in Europe and Japan scheduled for the third quarter, which may stimulate political risks due to rising nationalism, and the domestic environment vulnerable to exchange rate defense, a delay in the timing of the KRW-USD exchange rate decline is inevitable."