Weak Dollar Trend Boosts Won Value, Exchange Rate Volatility Shrinks... What Is the Future Outlook?

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] As the weak dollar trend continues, the won-dollar exchange rate is stabilizing in the high 1100 won range. Recently, despite concerns over the resurgence of the novel coronavirus infection (COVID-19) and US-China conflicts, the decline in the exchange rate due to the weak dollar is noticeable. Experts predict that the won-dollar exchange rate will remain stable between 1180 won and 1200 won for the time being.

According to the Bank of Korea and others on the 16th, the won-dollar exchange rate was 1185.6 won (closing price) on the 11th, down from 1203.0 won at the end of June. During this period, the Korean won appreciated by 1.5% against the US dollar.

Therefore, among emerging countries, the Korean won showed strength during this period following Mexico (+2.6%), China (+2.0%), and Brazil (+1.6%). Among developed countries, the British pound (+5.6%), euro (+4.8%), and Japanese yen (+1.4%) appreciated, while the US dollar depreciated by 3.9%.

A Bank of Korea official stated, "With global stock prices rising sharply and the Federal Reserve's continued accommodative monetary policy, the dollar weakened," adding, "The domestic foreign exchange sector maintained stability, with the won-dollar exchange rate declining."

Volatility in the won-dollar exchange rate also decreased in July compared to the previous month. The exchange rate volatility in July was 0.24%, with a fluctuation range of 2.9 won, down from 0.52% and 6.3 won in June.

The International Finance Center previously analyzed that if uncertainties caused by COVID-19 ease, the US dollar is likely to enter a weak trend from the end of the year. During the early stages of COVID-19, a flight to safe assets caused a global shortage of dollars, but as uncertainties diminish, demand for the dollar is expected to disappear.

Recently in the US, worsening internal and external imbalances such as the twin deficits have created conditions for a medium-term weakening trend. The weaker trend becomes more pronounced the longer the US economic recovery is delayed. Meanwhile, the euro is strengthening against the dollar as Europe's COVID-19 recovery speed and fiscal conditions are better than those of the US.

The Chinese yuan is expected to remain strong for the time being due to relatively rapid economic recovery, government stimulus efforts, and foreign investment attraction. However, if US-China conflicts and the Hong Kong dispute intensify, the upward pressure may be offset. Recently, the won has often shown a synchronized movement with the yuan. This synchronization between the won and yuan is a phenomenon arising from Korea's economic dependence on China, with exports to China accounting for nearly 30%.

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