Global Funds Flowing into the US Boosts Dollar Strength
Concerns Over Interest Rate Cuts Being Hindered
With former President Donald Trump's return to power, the won-dollar exchange rate is soaring, deepening concerns in Yongsan. Although there is anticipation for an additional base interest rate cut to boost domestic demand, the volatile global external environment has complicated calculations. In particular, as the Trump 2.0 era materializes and global funds flock to the United States, the dollar continues to strengthen. Domestically, ongoing capital outflows are raising concerns about exchange rate and stock market instability.
On the 13th, as the won-dollar exchange rate surpassed 1,410 won early in the trading session, the Presidential Office is closely monitoring the exchange rate and analyzing its impact on the Korean economy. A Presidential Office official stated, "We are observing the patterns and movements of the exchange rate changes following the U.S. presidential election results," adding, "While Trump's return to power increases instability factors in the foreign exchange market and domestic stock market, there are also considerable opportunities, so we will carefully analyze the situation and respond accordingly."
The recent sharp rise in the won-dollar exchange rate is acting as a factor that increases the burden on the Korean economy. Baek Seok-hyun, an economist at Shinhan Bank, said, "Concerns about the decline in export competitiveness of Korean companies and the acceleration of global funds flowing into the U.S. are the causes of the won's depreciation," and added, "Not only the won but also the euro, yuan, and yen are showing absolute inferiority against the dollar, so the upward trend in the won-dollar exchange rate is expected to continue for the time being."
Additionally, the continued foreign selling of Samsung Electronics, the market leader, is one of the causes fueling the rise in the won-dollar exchange rate. According to the financial investment industry, foreigners net sold about 877.5 billion won in the KOSPI from the 1st to the 12th of this month, with Samsung Electronics being the most sold stock. Analysts say that calming the foreign selling pressure on Samsung Electronics will also help stabilize the exchange rate. However, with the strengthening of protectionism in Trump's second term, the Korean economy is inevitably expected to be hit, raising concerns that capital outflows from the domestic stock market will continue for the time being. It will also be noteworthy to see what decision the Financial Monetary Policy Committee will make at its meeting scheduled for the 28th of this month, as it faces the unexpected challenge of rising exchange rates.
Yongsan maintains the position that an additional interest rate cut within the year is necessary despite the recent rise in the exchange rate, viewing the increase as likely a short-term trend. A senior official from the Presidential Office said at a press conference on the 5th, themed "Government Achievements and Future Tasks," "The base interest rate cut is basically decided by the Bank of Korea's Monetary Policy Committee, so it is difficult for the government to comment," but added, "Overall, with the trend of interest rate cuts in advanced countries, the difficult economic sentiment, the increased pain of self-employed and small business owners due to interest burdens, and issues with real estate project financing (PF), it would be helpful if the base interest rate were lowered from the government's perspective."
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