The won-dollar exchange rate is threatening the 1,400-won level again as the strong dollar phenomenon reemerges, resulting in a decrease of over 12 trillion won in dollar deposits at major commercial banks over the past six months. This is interpreted as an effect of an increasing number of depositors realizing profits as the dollar's value rose significantly.
According to the financial sector on the 1st, the dollar deposit balance at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) as of the 27th of last month was approximately 53.881 billion dollars. This represents a decrease of 9.047 billion dollars (14.38%) compared to the end of last year (62.928 billion dollars). In won terms, dollar deposits worth 12.5 trillion won have been withdrawn over the past six months.
The reason for the withdrawal of over 10 trillion won in dollar deposits within half a year is attributed to 'profit realization' due to the sharp rise in the exchange rate. According to the Bank of Korea Economic Statistics System, the won-dollar (closing) exchange rate started at 1,288.00 won on December 28 last year and showed a rising trend with 1,334.60 won at the end of January, 1,331.50 won at the end of February, 1,347.20 won at the end of March, 1,382.00 won at the end of April, and 1,384.50 won at the end of May.
On the 28th, the KOSPI started with a slight rise, approaching the 2800 mark, while the won-dollar exchange rate fluctuated slightly around the 1380 won level. Various indices such as stock prices and exchange rates are displayed on the electronic board in the dealing room at the Seoul Hana Bank headquarters. Photo by Huh Younghan younghan@
On the 24th of last month, the won-dollar exchange rate reached 1,389.00, soaring close to the 1,400-won level. Following this trend, the dollar deposit balances at the five major commercial banks have continuously decreased, recording 59.3 billion dollars at the end of January, 57.8 billion dollars at the end of February, 57.3 billion dollars at the end of March, 55.8 billion dollars at the end of April, and 53.2 billion dollars at the end of May.
Recently, this strong dollar phenomenon is interpreted as reflecting concerns about economic recessions in markets outside the U.S., such as China and Europe. In particular, political instability caused by early general elections recently decided in the UK and France is cited as one of the causes. In the first round of France's general election held the day before, the far-right National Rally (RN) recorded first place in exit polls, approaching its first-ever government formation. In the UK, which will hold early general elections on the 4th, the Labour Party is overwhelming the ruling Conservative Party, which has around 20% support, with about 40% support.
The slight increase (1.2%) in dollar deposits as of the 27th of last month compared to the end of the previous month (53.213 billion dollars) is analyzed as some buying demand anticipating further exchange rate rises. A representative from a commercial bank said, "Although the possibility of a Fed rate cut is increasing, the U.S. presidential election and other events remain in the second half of this year," adding, "Considering this trend, some demand may be concentrated on expecting further exchange rate increases."
The market expects the won-dollar exchange rate to fluctuate around the high 1,300s for the time being. While the strong dollar pressure may ease after the early general elections in the UK and France conclude, the fundamental conditions such as the economy, monetary policy, and exports outside the U.S. have not changed significantly. According to a report by Daishin Securities on the same day, "Once the political uncertainties in major European countries are partially resolved by the early general elections in the UK and France this week, additional dollar strengthening pressure is likely to be limited," but it also pointed out, "For the dollar to shift to weakness, confidence in the direction of U.S. monetary policy is necessary."
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