Digesting the 'Jackson Hole Effect'... Won-Dollar Exchange Rate Hits 1,320 Level for the First Time in 5 Months

Won-Dollar Exchange Rate Hits Lowest in 5 Months
Dollar Index at Lowest Level This Year
Further Decline Expected Until Year-End

The won-dollar exchange rate fell to the 1,320 won level for the first time in five months. As Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), signaled a strong rate cut at the Jackson Hole meeting, the value of the dollar dropped to its lowest level of the year, relatively increasing the value of the Korean won. Around 9:20 a.m. on the 27th, the won-dollar exchange rate rose to the 1,330 won threshold, but thanks to the weak dollar, there are forecasts that it could continue to decline further until the end of the year.

The won-dollar exchange rate, which had fallen to the lowest level in five months at around 1,320 won, started trading slightly higher on the 27th. The KOSPI index, which closed below the 2,700 mark the previous day, began with a slight decline along with the KOSDAQ. Employees are working in the dealing room at the Seoul Hana Bank headquarters, where various indices such as stock prices and exchange rates are displayed on the electronic board. Photo by Heo Younghan younghan@

On the 27th, in the Seoul foreign exchange market, the won-dollar exchange rate opened at 1,328.0 won, up 1.2 won from the previous trading day's closing price (3:30 p.m.). As of 9:20 a.m., it was trading at 1,329.93 won, 1.93 won higher than the opening price. That morning, the won-dollar exchange rate fluctuated between 1,329 and 1,330 won after opening.

The won-dollar exchange rate closed at 1,326.8 won in the previous day's weekly trading, down 12 won from the previous trading day. This is the lowest level in about five months since March 21 (1,322.4 won) based on the 3:30 p.m. closing price. During the previous day’s session, the won-dollar exchange rate showed a strong trend, touching the 1,310 won level with an intraday low of 1,319.4 won. This intraday low is the lowest level in about five months since March 14 (1,313.2 won).

Afterwards, in overnight trading, it stayed in the mid-to-high 1,320 won range. The exchange rate, which hovered around 1,325 won at 8 p.m., gradually rose and closed at 1,329.80 won at 2 a.m. the next day, 3 won higher than the previous day’s 3:30 p.m. closing price.

The won-dollar exchange rate has plunged about 60 won in a month. The rate, which hovered between 1,370 and 1,380 won, recording 1,385.8 won on the 26th of last month (based on the 3:30 p.m. closing price), began to show greater fluctuations after the 31st, falling to the 1,330 won level on the 19th of this month and dropping further to 1,326.8 won on the 26th.

This won strength is attributed to Chairman Powell’s indication of a September policy rate cut and the possibility of a big cut (0.50 percentage point rate cut) during his speech at the Jackson Hole meeting on the 23rd (local time), which caused the dollar’s value to fall to its lowest level of the year. In his speech at the Jackson Hole meeting, Powell said, "The time to adjust policy is approaching," and "The timing and pace of rate cuts depend on incoming data, changing outlooks, and the balance of risks." The market interprets this as Powell leaving open the possibility of a 'big cut.' Accordingly, the dollar index, which shows the relative value of the dollar against the currencies of six major countries, fell to 100.72 on the 23rd, its lowest level of the year.

The Japanese yen is also showing a concurrent strengthening trend. In the Tokyo foreign exchange market, the yen-dollar exchange rate fell to the 143 yen level during the previous day’s weekly trading. The yen-dollar exchange rate, which traded in the 150 yen range earlier this month, declined due to the Jackson Hole effect and predictions that the Bank of Japan (BOJ) will gradually raise interest rates. On the 23rd, BOJ Governor Kazuo Ueda attended the Japanese parliament and said, "If we can be confident that the economy and prices are in line with forecasts, we will continue to adjust easing policies," leaving open the possibility of additional rate hikes.

The won-yen recalculated exchange rate closed at 922.06 won per 100 yen in the previous day’s weekly trading. This is an increase of 2.52 won from the previous day’s 919.54 won.

Additional Decline in Won-Dollar Exchange Rate Expected Due to Weak Dollar

Analysts predict that the won-dollar exchange rate will continue to decline further until the end of the year, supported by the weak dollar. Kim Ho-jung, a researcher at Yuanta Securities, said, "We expect the won-dollar exchange rate band to fall further to the 1,290?1,310 won range by the end of the year," adding, "However, the intensity and speed of the decline will slow."

Park Sang-hyun, a researcher at iM Securities, said, "With the Fed’s September rate cut and the possibility of a 'big cut,' the won-dollar exchange rate is expected to remain around the 1,320 won level until the end of the year," but added, "Considering domestic economic conditions, it is unrealistic for it to fall to the 1,200 won level."

Researcher Kim said, "The interest rate environment itself will change from before, and accordingly, the liquidity environment may change, so the exchange rate will go down," adding, "Even if the U.S. cuts rates sufficiently, concerns about a recession will not disappear, and conversely, if Korea’s economy remains stable until the end of the year, the won-dollar exchange rate is expected to continue declining without a sharp rise."