"'Strong Dollar' Needs 'This Signal' to Break"[Issue Interview]

Interview with Ogonyeong, Head of Shinhan Bank Premier Pathfinder
"Significant Short-Term Exchange Rate Volatility Inevitable"
"Calculations Complicated by Highest Inflation in 40 Years and Japan's First Rate Hike in 17 Years"

▲ On the 4th, Oh Geon-young, head of the Shinhan Premier PWM Yeouido Center at TP Tower Yeouido, is being interviewed by a reporter.

"In the short term, the won-dollar exchange rate will be highly volatile, but in the long term, the dollar's strength will continue."

On the 4th, at Shinhan Bank's Shinhan Premier PWM Yeouido Center, Ogonyeong, head of the Premier Pathfinder, gave this answer regarding the won-dollar exchange rate outlook. As the won-dollar exchange rate of 1400 won becomes the 'new normal,' interest in the exchange rate is higher than ever. We met with Ogonyeong, a macroeconomic expert, to discuss the exchange rate and interest rate outlook, as well as investment strategies in this era of uncertainty.

Short-term Exchange Rate Volatility Inevitable... To Break the Strong Dollar, Watch 'This'

Ogonyeong analyzed the recent surge in the exchange rate as caused by both domestic and external factors. He diagnosed, "Domestically, the emergency martial law declared on December 3 last year, and externally, the Trump effect can be cited."

The Trump administration, which advocates 'America First,' promised large-scale tax cuts to domestic companies. This inevitably leads to a shortage of government tax revenue, and there is growing speculation that the Trump administration will use tariffs to make up for the shortfall. Tariffs raise import prices within the U.S., stimulating inflation, and if the Federal Reserve (Fed) implements a tight monetary policy to control prices, the strong dollar trend will inevitably continue.

Ogonyeong added that the U.S. economy is exceptionally strong now, so past exchange rate levels should not be compared. He said, "In the past, we had trauma from the 1997 foreign exchange crisis, so if the exchange rate exceeded 1300 won, it was considered a big problem, and 1400 won was seen as an absolute limit to be defended. However, in the short term, volatility will be very high."

Ogonyeong sees the 'U.S. trade deficit' as the key for the strong dollar to weaken. He analyzed, "The reason the U.S. imposes tariffs is because its manufacturing sector is struggling. Ironically, if the strong dollar continues due to tariffs, the manufacturing industry, often called the Rust Belt, will face even greater crisis."

He also explained that if the strong dollar continues, countries outside the U.S. tend to sell U.S. Treasury bonds they hold to stabilize their own currencies, which causes U.S. Treasury prices to fall (interest rates rise), further strengthening the dollar. Such high interest rates can worsen national debt problems, which could negatively affect the U.S. economy as well.

Ogonyeong predicted, "Ultimately, for the exchange rate to fall, the extreme strong dollar must go against U.S. interests, and at that time, Trump will change direction."

With the Strong Dollar and Japan's First Interest Rate Hike in 17 Years... Complex Calculations for Korea, the U.S., and Japan

▲ On the 4th, Oh Geon-young, head of the Shinhan Premier PWM Yeouido Center at Yeouido TP Tower, is being interviewed by a reporter.

Ogonyeong analyzed that the U.S. interest rate decision calculations have become much more complex than before. In the past, the U.S. could stimulate the economy by preemptively cutting rates based solely on the U.S. stock market or economic conditions, but now Japan has raised interest rates.

He said, "From the U.S. perspective, Japan's rate hike is uncomfortable. Although Japan is not as attentive to the U.S. as before, if not careful, problems like yen carry trade unwinding could occur anytime."

However, he viewed the possibility of another 'Black Monday'?like the one that shook global financial markets when Japan raised rates in July last year?as low. Ogonyeong explained, "The last Black Monday happened when signals of U.S. economic slowdown coincided with Japan's rate hike, shaking global markets. This time, the U.S. economy is strong without exception, and Japan has communicated steadily with the market from two weeks before the rate hike, learning from the previous unexpected market turmoil."

In other words, Japan's message is that it will continue a loose monetary policy but will raise rates when necessary without surprising the market.

Ogonyeong said, "Since Korea is not a key currency country, we cannot only look at growth and price stability. Domestically, we must consider real estate bubbles and household debt, and externally, interest rate differentials with other countries must be taken into account." He added, "Because Korea has the hurdle of financial stability, we must look at financial stability upfront while confirming both growth and price stability. Therefore, rather than following past exchange rate levels, we should be more open to a certain level of exchange rate appreciation than before."

March FOMC as a Turning Point... "U.S. Rate Cuts Will Be Slower and More Gradual Than Expected"

▲ On the 4th, Oh Geon-young, head of Shinhan Premier PWM Yeouido Center at Yeouido TP Tower, is being interviewed by a reporter.

Ogonyeong forecasted, "The turning point to gauge the direction of U.S. interest rates will be the March Federal Open Market Committee (FOMC) meeting."

With the Fed halting three consecutive rate cuts at the first FOMC of the new year, the market widely expects that a rate cut in March will also be difficult.

Ogonyeong said, "The market seems to see a higher possibility of rate cuts in the second quarter rather than at the March FOMC. If there is no rate cut at the March FOMC, it should send a signal." Earlier, when the phrase 'progress toward the inflation target' was removed from the January FOMC statement, market attention focused on it, and Fed Chair Jerome Powell drew a line, saying it should not be interpreted as a hawkish (tightening) shift.

Ogonyeong predicted, "Depending on what is said at the March FOMC, the annual number of rate cuts, previously forecasted at two, could be reduced."

He diagnosed, "The market always clings to past memories, but now things are completely different. Variables to consider have increased and become more complex due to 40-year high inflation and fears of yen carry trade unwinding."

He added, "One clear point about U.S. rate cuts is that they will proceed more slowly and gradually than the market expects."