Won-Dollar Exchange Rate Approaching 1120 Won with Increase... What Is the Reason?

US Stock Market Plunge Due to Risk Asset Aversion Phenomenon

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] As global stock markets undergo corrections, the domestic stock market has also plunged sharply, causing the won-dollar exchange rate to show an upward trend. Overall, investment sentiment has rapidly frozen, leading to a sharp deterioration in risk asset investment sentiment.

According to the Seoul foreign exchange market on the 30th, the won-dollar exchange rate closed at 1118.8, down 0.8 won from the previous trading day (1119.6 won).

The won-dollar rate, which started at 1114.0 won, fell to 1113.5 won in the early session. However, from the afternoon, the decline began to narrow, giving back the losses. During the session, it reversed to an upward trend, breaking through 1120 won and rising to 1121.5 won. This is the highest level since the intraday record of 1126.9 won on November 6 last year. The intraday fluctuation was 8.0 won.

The start of the exchange rate's upward trend was triggered by remarks from Jerome Powell, Chairman of the Federal Reserve (Fed), on the 27th (local time). After the Federal Open Market Committee (FOMC) held the benchmark interest rate steady, Chairman Powell expressed concerns, saying, "The COVID-19 situation still poses significant risks to the economy," and "It is very uncertain, and difficult times remain ahead."

The FOMC statement also adopted a somewhat more pessimistic economic outlook, noting that "the pace of economic activity and employment recovery has slowed." Nevertheless, by not introducing additional easing policies, the financial market expressed disappointment. With no mention of further stimulus measures, risk-averse sentiment emerged, the dollar strengthened, and the won-dollar exchange rate rose.

Meanwhile, in the domestic stock market, the KOSPI index fell below the 3000 mark. The KOSPI closed at 2976.21, down 3.03% from the previous trading day (3069.05). This is the first time in 17 trading days since the 6th (2968.21) that the KOSPI has fallen below 3000. The controversy over short selling between individual investors and Wall Street hedge funds surrounding the U.S. video game distributor GameStop also acted as a negative factor in the market.

In particular, foreign and institutional investors' selling pressure had a significant impact on the KOSPI index in the domestic market. Foreigners and institutions sold 1.4413 trillion won and 253.6 billion won, respectively, in the securities market. As overseas investors sold stocks, the supply of dollars became insufficient, leading to an upward trend in the won-dollar exchange rate.

However, experts believe that while the won-dollar exchange rate will face upward pressure in the short term, the possibility of a sustained upward trend is low. Despite the resurgence of COVID-19, vaccination rates are increasing, and in Korea, export indicators are showing positive trends, making it difficult for the won-dollar exchange rate to rise further. There are also forecasts that if the economic recovery in advanced countries begins from the first quarter, the won-dollar exchange rate will reverse and decline.

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