Electronic signboards at Hana Bank in Seoul shows, Tuesday, the benchmark KOSPI advanced 5.3 points or 0.19 percent to 2,753.16, while the won-dollar rate ended at 1,352.10, up 2.7 won from the previous day. Yonhap
‘Robust US economy, weak performances of yen, yuan may push up rate to 1,360 won level’
By Yi Whan-woo
The Korean won’s exchange rate against the US dollar is persistently exceeding its annual peak, propelled by the resilience of the American economy, which has buoyed the dollar against global currencies.
The won-dollar exchange rate hit 1,355.8 won per greenback at one point during intraday trading, Tuesday, marking the highest level since Oct. 30, 2023 when it reached 1,356.7 won.
The Korean currency closed at 1,352.10 won against the dollar.
The exchange rate mostly stayed in the lower range of the 1,300 won level from January to March. It then breached the 1,350 won level for the first time this year, Thursday, when it opened at 1,350.6 won.
An elevated exchange rate signals a sharper depreciation of the Korean currency against the greenback.
Analysts predict that this depreciation could intensify throughout the first half of 2024, with the won potentially retreating to the 1,360 won level.
They noted that a resilient American economy is lowering the possibility of the US Federal Reserve cutting benchmark interest rates beginning in June as part of three rate cuts it signaled for all of 2024.
“The Fed would not want to risk an inflationary rebound by pushing ahead with eased monetary policy unnecessarily when multiple indices show that the US economy is strengthening,” Hana Bank researcher Seo Jung-hoon said.
The Fed’s benchmark overnight borrowing rate currently ranges between 5.25 percent and 5.5 percent.
US consumer inflation increased 3.2 percent year-on-year in February, compared to 3.1 percent in January and higher than the Fed’s target of 2 percent. Also in February, year-on-year US consumer spending shot up 0.8 percent, well ahead of the 0.5 percent estimate. The US manufacturing sector, which accounts for 10.4 percent of the country’s economy, rebounded in March after contracting for 16 straight months.
“Taking these factors into account, I bet the timing of the US rate cuts may be postponed, leaving much room for the won-dollar exchange to go up, possibly above the 1,360 won level,” Hansung University economics professor Kim Sang-bong said .
Experts said a weaker performance of major currencies against the dollar is fueling the depreciation of the won.
The dollar index, which measures the US currency against six rivals, was 0.4 percent higher at 104.97, Monday.
The six include the euro, the Japanese yen, the Canadian dollar, the British pound, the Swedish krona, and the Swiss franc.
“A weakening of the yen is especially a minus factor for Korea, considering the fact that the won tends to show a coupling behavior with the yen,” Woori Bank researcher Min Kyung-won said.
He noted that the Japanese currency fell short of attracting investors searching for safe haven assets, even after Tokyo’s central bank ended the era of negative interest rates in March signaling a departure from its monetary easing stance.
Min said the weakening of the Chinese yuan is adding upward pressure on the won-dollar exchange rate.
“The Korean currency has increasingly displayed a coupling behavior with the Chinese peer as China’s economic slump is prompting investors to pull out money,” the researcher said.
Hi Investment & Securities analyst Park Sang-hyun said volatile global oil prices could further weaken the value of the won against the dollar amid the ongoing Israel-Hamas conflict and the war in Ukraine.
