Concerns Over Trump's Protectionism... Exchange Rate Breaks 1400 Won, Highest in 2 Years (Comprehensive)

Trump trade likely to remain strong for the time being

On the 12th, the won-dollar exchange rate surpassed 1,400 won.

As former President Donald Trump won the U.S. presidential election, concerns over protectionism grew, causing the won-dollar exchange rate to surpass 1,400 won, reaching its highest level in two years.

On the 12th, in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,403.5 won at 3:30 p.m., up 8.8 won from the previous trading day. This is the first time in about two years since November 7, 2022, that the weekly closing price exceeded 1,400 won.

The surge in the exchange rate is due to a global strengthening of the dollar following Trump's election. The prospect of intensified global trade conflicts due to protectionist policies under a second Trump administration has led to a continuous strengthening of the dollar, considered a safe-haven asset.

Trump pledged to impose a universal tariff of 10% on all imports into the U.S. and a 60% tariff on Chinese imports. With the Republican Party controlling not only the White House but also both houses of Congress in a red sweep, concerns have grown that Trump's pledges may become reality.

The dollar index, which reflects the value of the dollar against six major world currencies, rose to around 105.7 on the day, marking its highest level in four months. This is despite the U.S. Federal Reserve lowering the base interest rate by 0.25 percentage points on the 7th, indicating an unusual strength in the dollar.

Domestic banks are also raising their upper forecasts for the won-dollar exchange rate. Woori Bank projected that the won-dollar rate could rise to as high as 1,420 won this month, while KB Kookmin Bank and Shinhan Bank set the upper limit at 1,410 won. Just last month, the upper forecast was around 1,340 won, but the atmosphere has changed significantly since Trump's election.

The market expects the dollar's strength to continue for some time. Global investment bank JP Morgan evaluated the election result as reinforcing "American exceptionalism" (which benefits only the U.S. economy) and predicted that "even without official tariff hikes, pressure for a strong dollar will intensify."

Lee Min-hyuk, an economist at KB Kookmin Bank, explained, "With the Republican Party likely to secure a majority in the House of Representatives, the possibility of a red sweep has increased, and the resulting Trump trade is a factor for dollar strength and won weakness. Currently, Trump's proposed universal tariffs and tax cuts are factors for dollar strength as they cause U.S. inflation to reaccelerate and fiscal deficits to expand."

However, some view that if the won-dollar exchange rate continues to rise, intervention by South Korea's foreign exchange authorities may become more active, limiting further sharp increases. If the rate rises further, it is expected that the government or the Bank of Korea will take more proactive measures to manage the exchange rate.

Min Kyung-won, an economist at Woori Bank, stated, "If exchange rate volatility increases, fine-tuning interventions by foreign exchange authorities to control the pace may appear. Since exporters are selling dollars as the exchange rate rises, further increases are unlikely."