"Increased Exchange Rate Volatility in Second Half... Trump 2.0 Risk and Interest Rate Cut Policy Clash"

Hi Investment & Securities forecasted on the 22nd that volatility in the global foreign exchange market will increase in the second half of this year due to the conflicting factors of the 'Trump 2.0 risk' and the U.S. Federal Reserve's (Fed) 'interest rate cut.'

Researchers Park Sang-hyun and Lee Seung-jae stated, "If the Fed's interest rate cut occurs as early as September, as initially expected, it will be an important variable for the dollar's movement," adding, "In other words, it is a factor that could weaken the dollar's strength."

The two researchers noted, "However, as the probability of candidate Trump winning increases, the global foreign exchange market has been exposed early to the Trump 2.0 risk," and "The average USD-KRW exchange rate level is judged to have risen one step since the U.S.-China conflict."

They also pointed out, "Domestic twin deficits (current account and fiscal deficits) risk, which did not exist in the past, weakening domestic position in global trade and manufacturing, China shock, and peak Korean risk are all increasing pressure for the won's depreciation."

Furthermore, they said, "Regarding the Trump 2.0 risk, somewhat conflicting variables coexist, such as Trumpflation and the risk of a 'second Plaza Accord,'" adding, "However, since the Trump 2.0 policies are expected to be implemented from 2025 even if Trump is elected, the global foreign exchange market is more likely to preemptively reflect the risk of a 'second Plaza Accord' rather than immediately reacting to Trumpflation."

The two researchers also predicted, "There could be increased appreciation pressure on major currencies," and "In addition, the Bank of Japan's strengthened tightening stance could make the yen's appreciation more pronounced, which will be an important factor for the foreign exchange market, especially the dollar's movement, in the second half of the year."

They concluded, "Although the won may also face increased appreciation pressure due to exposure to the Trump 2.0 risk, the fragile domestic economic fundamentals and China risk are expected to limit the extent of the won's appreciation."