USD-KRW Exchange Rate Hits 1240 Won Intraday... Highest in 4 Years Despite Fed Big Cut (Comprehensive)

"Fed Rate Cut Policy Yet Fails to Ease Recession Concerns"
BOK Lowers Base Rate from 1.25% to 0.75%

Due to the impact of the novel coronavirus infection (COVID-19) pandemic, the global stock markets plummeted, and the KOSPI index opened at 1,640.84 on the 17th, down 74.02 points (4.32%) from the previous trading day (1,714.86). Dealers are busy working in the dealing room of Hana Bank in Jung-gu, Seoul. On the same day, the won-dollar exchange rate opened at 1,231.0 won, up 5.0 won from the previous trading day (1,226.0 won). Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jang Sehee] On the morning of the 17th, the KRW-USD exchange rate surged by more than 10 won.

In the Seoul foreign exchange market, as of 9:20 a.m. that day, the KRW-USD exchange rate recorded 1,238.3 won per dollar, up 12.3 won from the previous day. The exchange rate started at 1,231.0 won, up 5.0 won, and then sharply increased its rise.

In the early session, the exchange rate even soared to 1,240 won. It is the first time since February 29, 2016 (1,245.3 won) that the intraday exchange rate rose to the 1,240 won level.

The early decline in government bond yields was influenced by the Bank of Korea's sudden cut of the base interest rate to the 0% level.

As of 9:30 a.m. that day in the Seoul bond market, the 3-year government bond yield recorded 1.019% per annum, down 8.0 basis points (1bp=0.01 percentage points) from the previous trading day. The 10-year yield fell 2.8bp to 1.496% per annum, the 5-year yield dropped 7.1bp to 1.197% per annum, and the 20-year yield decreased 1.8bp to 1.522% per annum.

The decline in government bond yields appears to be influenced by the Bank of Korea's emergency Monetary Policy Committee meeting held the previous day, which lowered the base interest rate from 1.25% to 0.75%, a 0.50 percentage point cut.

This is the first time in history that the domestic base interest rate has entered the 0% range, and it is the third time the Bank of Korea has held an emergency Monetary Policy Committee meeting to cut rates, following the 9/11 terror attacks in 2001 and the financial crisis in 2008.

Meanwhile, major indices on the U.S. New York Stock Exchange plunged again last night due to recession concerns caused by COVID-19, despite the Federal Reserve's aggressive stimulus measures. U.S. President Donald Trump's concern that the COVID-19 situation could continue until August also increased the stock market's decline.

The Dow Jones Industrial Average closed at 20,188.52, plunging 2,997.10 points (12.93%) from the previous session. The Dow recorded its largest drop since Black Monday in 1987, just two trading days after March 12.

Despite central banks around the world, including the Fed, cutting interest rates?such as the Fed lowering the base rate from 1.00%-1.25% to 0.00%-0.25% by 1 percentage point?the recession fears caused by COVID-19 have not been dispelled.

Professor Kim Soyoung of Seoul National University's Department of Economics analyzed, "It seems that the Fed's rate cut has had the effect of expanding instability. Investors previously did not realize the risks in the financial market, but as rates fall to the 0% level, they perceive it as becoming similar to the financial crisis."

Meanwhile, at the same time, the KRW-JPY recalculated exchange rate is currently 1,165.53 won per 100 yen, up 12.24 won from the previous day's 3:30 p.m. reference price of 1,153.29 won.

This content was produced with the assistance of AI translation services.