US Interest Rate Cut Causes Exchange Rate to Plunge Over 10 Won... Falls to 1380 Won Range

'Trump Trade' Also Shows Signs of Calming Down

The US Federal Reserve (Fed) cut interest rates further, causing the won-dollar exchange rate to close in the 1380 won range during weekly trading. After surpassing 1400 won during intraday trading following the US presidential election on the 5th and soaring for two consecutive days, the exchange rate is showing signs of stabilization.

Amid the US Federal Reserve's benchmark interest rate cut, the US S&P 500 and Nasdaq indices hit record highs for two consecutive days, and on the 8th, the domestic stock market also started on an upward trend. The KOSPI opened at 2,586.70 points, up 22.07 points, and the KOSDAQ also started higher. The won-dollar exchange rate fell by more than 10 won. Various indices are displayed in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Heo Young-han

On the 8th, in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1386.4 won, down 10.2 won from the previous trading day's weekly closing price. On that day, the won-dollar exchange rate opened at 1386.0 won, down 10.6 won from the previous trading day, and fluctuated in the 1380 won range during the session.

The US interest rate cut is interpreted as having triggered a weaker dollar. In addition, the 'Trump trade' (investing in assets that benefit from Trump’s policies), which was a factor in the dollar’s strength immediately after the US presidential election, has also subsided.

On the 7th (local time), the US Federal Reserve (Fed) lowered the benchmark interest rate by 0.25 percentage points from 4.75?5.0% to 4.50?4.75%. As a result, the interest rate gap between Korea and the US narrowed to 1.5 percentage points.

On that day, the dollar index rose to the 105 level from the previous trading day and then fluctuated around the 104 level.

Choi Ye-chan, a researcher at Sangsangin Securities, said, "In the early hours of the previous day’s US market, the Fed’s rate cut combined with the reversal of the Trump trade caused the dollar index to weaken from 105 to 104."

He added, "Although former President Trump’s election was a factor strengthening the dollar, since the Fed is expected to continue cutting rates consecutively, the won-dollar exchange rate is expected to fall below the current level by the end of next year."