Exchange Rate Already at Financial Crisis Level... Approaching 1500 Won

USD-KRW Exchange Rate Surpasses 1450 Won Amid US Interest Rate Cut Slowdown
Soars to 2008 Global Financial Crisis Levels
Uncertainty Grows Despite Foreign Exchange Authorities' Stabilization Measures, Could Exceed 1500 Won

As the U.S. Federal Reserve (Fed) hinted at slowing the pace of interest rate cuts, the New York stock market plunged sharply, and the domestic stock market also opened with a significant decline. The KOSPI started the session down 57.88 points (2.33%) at 2426.55, and the KOSDAQ also opened more than 15 points lower. Various indices are displayed in the dealing room of Hana Bank's headquarters in Euljiro, Seoul. Photo by Heo Young-han

As the United States slows down the pace of interest rate cuts, the won-dollar exchange rate surged, breaking through 1,450 won, a level seen during the global financial crisis. Although foreign exchange authorities have taken market stabilization measures, the won-dollar exchange rate is expected to rise to 1,500 won due to the combined uncertainties of U.S. monetary policy and domestic political instability.

On the 19th, in the Seoul foreign exchange market, the won-dollar exchange rate opened at 1,453.0 won, up 17.5 won from the previous trading day. This is the first time in 15 years and 9 months since March 2009, near the end of the global financial crisis, that the won-dollar exchange rate has surpassed 1,450 won.

The U.S. Federal Reserve (Fed) announced it would slow the pace of future benchmark interest rate cuts, significantly impacting the Korean foreign exchange market. According to the dot plot released when the Fed cut rates by 0.25 percentage points early that day, the expected rate cut for next year is only 0.5 percentage points, reduced to half of the 1 percentage point cut forecasted in the September dot plot.

Fed Chair Jerome Powell stated, "As inflation forecasts have risen again, the median interest rate outlook has also increased somewhat," adding, "If inflation strengthens further, the pace of rate cuts could be slowed even more." Following Powell's remarks, the dollar index, which measures the dollar's value against the currencies of six major countries, surpassed 108, its highest level this year.

Minhyuk Lee, an economist at KB Kookmin Bank, analyzed, "The Federal Open Market Committee (FOMC) results early this morning were interpreted as quite hawkish," and "As the dollar showed ultra-strong performance, the exchange rate also hit a new high."

With the exchange rate surging, foreign exchange authorities issued consecutive market stabilization statements. Deputy Prime Minister and Minister of Economy and Finance, Sangmok Choi, held a Macroeconomic and Financial Meeting (F4 meeting) that morning, saying, "We will continuously operate a 24-hour financial and foreign exchange market monitoring system and will boldly and swiftly implement additional market stabilization measures against excessive volatility."

Deputy Governor Sangdae Yoo of the Bank of Korea also emphasized at a market situation review meeting that morning, "If external uncertainties combine with domestic political situations to excessively increase financial and foreign exchange market volatility, we will promptly implement market stabilization measures." Bank of Korea Governor Changyong Lee also stated at a briefing on inflation target management the previous day that he would respond firmly if exchange rate volatility increases.

Despite the authorities' repeated statements, the market expects the exchange rate could temporarily break through 1,500 won. This is due to heightened domestic political and economic instability following the emergency martial law and impeachment crisis, compounded by uncertainties in U.S. monetary policy. The fact that the depreciation of the Korean won is greater than that of major currencies such as the Chinese yuan, Japanese yen, and European euro is also seen as reflecting this anxiety.

Kyungwon Min, an economist at Woori Bank, forecasted, "Due to the deepening uncertainty in U.S. monetary policy next year, demand for the safe-haven dollar is expected to continue," adding, "With foreign investors continuing net selling in the domestic stock market, the exchange rate could rise to 1,500 won in the short term."