KTB Securities "Dollar Weakness Trend... No More Room for Decline"

[Asia Economy Reporter Minji Lee] Although the recent weakness of the US dollar has been prominent in the foreign exchange market, opinions suggest that further decline is difficult.

According to KTB Investment & Securities on the 9th, the dollar index has fallen about 4.5% since last month. The core reason for the recent US dollar weakness is the strength of the euro. The euro's strength reflects expectations for a future economic rebound, such as the European Union (EU) recovery fund agreement and expanded fiscal spending in Germany, rather than a recovery in the real economy.

Im Hyeyoon, a researcher at KTB Investment & Securities, said, “The fact that EU-level joint responses were possible and the capacity to withstand shocks has strengthened is positive,” but added, “Nevertheless, we must keep in mind that signs of real economic recovery remain weak.”

[Image source=Yonhap News]

In the second quarter, Eurozone GDP decreased by 12.1% quarter-on-quarter and by 15% year-on-year. Compared simply to the US GDP, which fell 9.5% quarter-on-quarter, the Eurozone's real economy recovery appears slower. Researcher Im said, “For the euro's strength to continue, the economic gap with the US must narrow, but currently, such signs are difficult to confirm,” and explained, “The euro's strength, unsupported by real economic recovery, is more likely to be short-term rather than a sustained trend.”

The resolution of uncertainties regarding additional US stimulus measures is also expected to reduce downward pressure on the dollar. The reason for the strong dollar trend since 2018 has been the economic gap between the US and other countries. Im said, “The expansion of uncertainties related to the fifth stimulus package likely caused concerns about prolonged US economic weakness, leading to the dollar's decline,” and diagnosed, “Given that the White House and both parties agree on the necessity of the policy and that the Senate has postponed recess to actively negotiate, an agreement will eventually be reached.”

He added, “As the downward pressure on the dollar eases, it is expected to remain in the high 1100 won range,” and analyzed, “Besides the easing of dollar weakness pressure, factors such as limited further strengthening of the yuan and increased dollar demand due to overseas investment will also restrict the won's appreciation.”

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