On July 17, Korea Investment & Securities stated that the dollar-won exchange rate, which is nearing 1,400 won per dollar, is expected to face upward pressure until the end of the month due to the so-called "strong dollar trio": Trump tariffs, the U.S. employment surprise, and inflation.
Moon Daun, a researcher at Korea Investment & Securities, said, "Since July, strong dollar factors have overlapped." The dollar-won exchange rate, which quickly surpassed the previously expected resistance levels of 1,380 and 1,390 won, is now approaching the next major level of 1,400 won. The dollar index, which measures the value of the dollar against six major currencies, has also been on the rise this month.
Moon identified U.S.-imposed tariffs as the primary background for the strong dollar. He explained, "Around July 8, with the expiration of the mutual tariff suspension, uncertainty over Trump’s tariff policy has once again increased. While U.S. President Donald Trump has notified major countries of higher tariff rates than the previously imposed mutual tariffs, uncertainty over negotiations remains until the actual imposition in early August."
He added, "The U.S. employment data for June exceeded market expectations, and signs of tariffs began to appear in the June Consumer Price Index (CPI), raising concerns about inflation. With a strong labor market and renewed inflation risks, the futures market has reduced its expectations for Federal Reserve rate cuts this year from 2.6 times to 1.8 times." He pointed out that both employment data and inflation concerns are also contributing to the strong dollar.
Moon noted, "In the short term, there are few catalysts for a reversal to a weaker exchange rate," and predicted that upward pressure will remain dominant until the end of the month. However, he diagnosed, "Considering the burden from the rapid rise in the exchange rate, inflows from export company settlements, net foreign buying of domestic stocks, and the possibility of verbal intervention by authorities, the pace of further increases will likely be limited."
He predicted, "The trigger for a weaker dollar will be the resolution or easing of the three factors that have recently pushed up the dollar index." He added, "The most likely scenario is a reduction in uncertainty over Trump’s tariff policy." He continued, "Except for some countries and items, most mutual tariffs will likely be eased through negotiations. While policy uncertainty has temporarily increased, there is a high possibility of negotiations before the actual imposition."
Additionally, he said, "If the employment data to be released on August 2 falls short of market expectations, expectations for a rate cut could rise again, potentially limiting the dollar's gains. On the other hand, it will likely be difficult to ease inflation concerns through the CPI to be released in August."
Meanwhile, overnight, the dollar-won exchange rate soared to 1,394.90 won per dollar after the release of the U.S. Producer Price Index (PPI), but later fell back to the upper 1,380 won range following foreign media reports about the possible dismissal of Federal Reserve Chair Jerome Powell.
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