Won-Dollar Exchange Rate Surges to 1,420 Range During Holiday... Korea Investment & Securities Raises 4Q Average Forecast

Raised by 20 won to 1,390
"Fluctuations in the 1,400 won range expected for the time being"

Korea Investment & Securities announced on October 10 that it has raised its forecast for the average won-dollar exchange rate in the fourth quarter of this year to 1,390 won per dollar. During the long holiday, the dollar-won exchange rate climbed to the mid-1,420 won range following movements in the Japanese yen, and it is expected to fluctuate within the 1,400 won range for the time being.

Moon Daun, a researcher at Korea Investment & Securities, stated in the report "Exchange Rate Outlook Update: Political Issues in Major Countries During the Holidays" released on the same day, "Political instability in the United States, Japan, and France during the holiday period all contributed to upward pressure on the dollar." He raised the fourth-quarter average won-dollar exchange rate forecast by 20 won from 1,370 won, which was presented in August, to 1,390 won. The projected exchange rate range is 1,350 to 1,440 won.

Yonhap News Agency

Researcher Moon pointed out, "With both domestic and external pressures weighing on the won, the NDF (non-deliverable forward) dollar-won exchange rate surged to the 1,420 won level during the Chuseok holiday in early October." In particular, the value of the yen plunged by nearly 4% (dollar-yen exchange rate rose) after Sanae Takaichi, the former Minister for Economic Security known as the "female Abe," was elected as president of Japan's Liberal Democratic Party, which also affected the dollar-won exchange rate. Additionally, the euro came under downward pressure as French Prime Minister Sebastien Lecornu resigned just one month after taking office.

Moon noted, "With the slowdown in U.S. employment, there are currently no clear catalysts for a decline in the exchange rate until a distinct weak dollar trend resumes. Even this is uncertain, as the release of economic indicators has been temporarily suspended due to the U.S. government shutdown that began on October 1." He added, "It is also unclear whether the Korea-U.S. summit scheduled for the end of the month will result in negotiations favorable to Korea and the won."

He explained, "Now that the sharp yen weakness following Takaichi's election has subsided, the direction of the dollar-won exchange rate depends on the U.S. employment report and negotiations on investments in the U.S. For the exchange rate to return to the 1,300 won range, the U.S. government shutdown must be lifted and the delayed employment report must confirm further signs of a slowdown in the labor market."

However, Moon predicted, "Since the current exchange rate is nearing the upper end of the appropriate range estimated by macro variables, further increases in the dollar-won exchange rate will be limited in both magnitude and speed due to the burden of the current level and potential government intervention." He continued, "As for the lower bound, considering the strong downward rigidity expected at the 1,400 won 'big figure,' fluctuations within the 1,400 won range are likely to be inevitable for the time being."

Meanwhile, after the long Chuseok holiday, the won-dollar exchange rate opened at 1,423 won per dollar in the Seoul foreign exchange market on this day, up 23.0 won.