[Aldonsseuljab] Aftermath of Martial Law Remains, Plus US FOMC Shock... Currency, Stock Market, and Crypto Hit Hard

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Yonhap News

Before the aftermath of martial law has even settled,

the shock from the U.S. Federal Reserve's (Fed) Federal Open Market Committee (FOMC)

has once again shaken the financial markets.

There is an assessment that the FOMC was more hawkish (favoring monetary tightening) than expected,

and the won-dollar exchange rate broke through 1450 won, a level seen during the global financial crisis.

In the short term, there are even forecasts that the exchange rate could surge to 1500 won.

Let's take a look at what the FOMC decided and why the financial markets are so volatile.

U.S. 3 Major Indices Fall One After Another Following FOMC's Monetary Tightening Signal

Yonhap News

On the 18th (local time), the U.S. FOMC lowered the benchmark interest rate by 0.25 percentage points.

Accordingly, the rate was reduced from the previous 4.5?4.75% to 4.25?4.5%.

Since last September, after the 'big cut' (a 0.5 percentage point cut in the benchmark rate) that changed the interest rate path for the first time in 30 months, this marks the third consecutive cut.

As a result, the interest rate gap with South Korea (3% per annum) narrowed to 1.5 percentage points at the upper bound.

Fed Chair Jerome Powell explained after the FOMC, "The U.S. economy is sound," and "The recent slowdown in the pace of inflation reduction is because the economy is growing faster."

He added, "We have lowered rates quite quickly so far," and "the pace will definitely slow down going forward."

Accordingly, the Fed reduced its forecast for the number of rate cuts next year from four to two.

Following Powell's hawkish remarks, the three major U.S. stock indices fell one after another.

Right after the FOMC announcement, the Nasdaq index, which is tech-heavy, closed at 19,392.69, down 3.56% from the previous day.

The Standard & Poor's (S&P) 500 index fell 2.95%, and the Dow Jones Industrial Average dropped 2.58%.

Exchange Rate Surges to Global Financial Crisis Levels... Threatening the 1500 Won Mark

Yonhap News

Following the FOMC announcement and the delayed outlook for U.S. rate cuts, the won-dollar exchange rate surged to its highest level since the 2009 global financial crisis.

On the 19th, the won-dollar exchange rate hit 1453 won right after the market opened, breaking through 1450 won.

This is the first time in 15 years since March 16, 2009, during the global financial crisis, that the won-dollar exchange rate has exceeded 1450 won.

With the psychological threshold of 1400 won becoming the 'new normal,' there are forecasts that the exchange rate could even break through 1500 won in the short term.

As the exchange rate surged, the Bank of Korea found itself in a dilemma ahead of its monetary policy direction meeting in January next year.

Following martial law and impeachment, political turmoil continues,

and with external uncertainties piling up ahead of the launch of the Trump administration's second term,

the Bank of Korea needs to cut the benchmark rate to stimulate the economy, but its monetary policy capacity has further diminished.

If the U.S. adjusts the pace of rate cuts next year,

a strong dollar trend will continue for the time being, causing the won's value to fall further,

and in this situation, if the Bank of Korea lowers the benchmark rate further, the interest rate gap between Korea and the U.S. will widen, potentially prompting investor outflows.

Stock Market Rebounds After 3 Trading Days but Wobbles Again in a Day

Yonhap News

The shock from the FOMC also shook our stock market.

Until just before the FOMC announcement, the KOSPI rebounded thanks to net buying by foreigners,

successfully recovering after 3 trading days, but froze again after just one day.

Right after the FOMC announcement, foreign and institutional investors sold off 940 billion won worth of stocks in the KOSPI alone.

In the KOSDAQ, net selling continued with about 130 billion won, causing both the KOSPI and KOSDAQ to fall together.

The top 10 stocks by market capitalization all declined, and the KOSPI index closed at 2435.93, down 1.95% from the previous trading day.

The KOSDAQ index also closed down 1.89% at 684.36.

As the stock market fluctuated, financial authorities hurried to calm the situation.

Unusually, the Speaker of the National Assembly also visited the Bank of Korea, urging proactive measures to resolve economic uncertainties.

Woo Won-shik, Speaker of the National Assembly, said, "Proactive measures by financial authorities are more necessary than anything else to stabilize household debt, manage financial market volatility, and support export recovery."

Cryptocurrency Market Also 'Stumbles' but "Bull Market Not Over Yet"

Yonhap News

The cryptocurrency market, which had been on the rise, is also showing signs of stumbling.

After the Fed's announcement of a benchmark rate cut, it experienced a sharp decline.

Bitcoin, which had been trading around $103,000?$104,000 (about 150 million won),

once fell below $100,000, dropping to around $92,000.

This is interpreted as a result of risk asset preference shrinking due to expectations of a slowdown in the pace of rate cuts at the FOMC.

However, the outlook that the cryptocurrency bull market will continue for the time being remains unchanged.

Ryan McMillin, Chief Investment Officer of cryptocurrency fund Merkle Tree Capital, said, "The bull market is not over yet," and "It's actually a good time to buy."

The industry also analyzed that demand for Bitcoin is not decreasing.

Cryptocurrency exchange Korbit predicted in its '2025 Cryptocurrency Market Outlook' that Bitcoin will rise to $160,000?$170,000 next year.

These days, with political instability followed by economic uncertainty,

the year-end feels unusually colder.

Although it is harder than ever to feel excitement for the new year and the year-end atmosphere,

I believe that maintaining daily life during such times is truly a great achievement.

I hope today's information was useful to our readers,

and 'subscriptions' and 'likes' are a great encouragement.

Thank you.