'Vaccine Distribution Is Key to Economic Recovery'... Exchange Rates Rise Amid Stronger-Than-Expected Dollar

US Dollar Strengthens Amid Rapid Vaccine Distribution, Defying Weak Dollar Expectations
US Economy Expected to Recover Faster Than Europe and Japan
Dollar Strength May Continue Until Global Economic Recovery Stabilizes
However, Sharp Exchange Rate Increases Unlikely... Won-Dollar Rate Projected Around 1120 Won

[Asia Economy Reporter Kim Eun-byeol] The US dollar, which was expected to weaken this year, is instead showing a strong trend. The rapid progress of COVID-19 vaccinations in the United States, leading to a faster economic recovery compared to Europe and Japan, is a factor pushing up the value of the dollar. Experts predict that while the dollar will still weaken in the long term, the 'vaccine divide'?the disparity in vaccine distribution?will determine the pace of economic recovery in each country and raise currency values, maintaining a strong dollar trend for the time being. The won-dollar exchange rate is expected to remain in the 1120 won range for the foreseeable future.

According to Bloomberg and others on the 8th, the Dollar Index, which measures the value of the US dollar against the currencies of six major countries, has risen about 1.3% since the beginning of this year. Excluding the Turkish lira, which is expected to see interest rate hikes to control inflation, this is the highest level among major currencies. Compared to the end of last year, the Bloomberg currency index fluctuations show that besides the US dollar, the British pound (1.1%), Canadian dollar (1.2%), and New Zealand dollar (0.3%) have all strengthened. The euro (-0.81%) and Japanese yen (-2%) weakened compared to the end of last year. Park Sung-woo, an analyst at DB Financial Investment, explained, "Since the beginning of this year, major currencies have shown a positive correlation with the speed of vaccine distribution to some extent," adding, "The logic is that faster vaccine distribution can lead to faster economic recovery."

As the US dollar strengthens, the Korean won has relatively weakened, and the won-dollar exchange rate has steadily risen since the beginning of the year. On this day, the won-dollar exchange rate opened at 1118.0 won in the Seoul foreign exchange market and was trading at 1120.49 won as of 9:54 a.m. On the 5th, the won-dollar exchange rate rose to 1123.7 won, marking the highest level since November 5 last year (1128.2 won). The exchange rate has increased by more than 38 won since the beginning of the year.

The robust recovery of the US economy, which is fueling the strong dollar, is confirmed by the numbers. The International Monetary Fund (IMF) raised the US growth rate forecast to 5.1%, while Europe’s growth forecast was revised downward by 1 percentage point to 4.2%. In the US, rapid recovery is driven by vaccinations, consumption recovery, and stimulus measures, whereas in Europe and Japan, lockdown measures have been strengthened again, raising concerns about a 'double dip.'

Market participants agree that the only incorrect prediction for this year's financial market was the 'strong dollar.' It was expected that aggressive money printing by the US government would increase dollar supply and weaken the dollar, but instead, the 'vaccine divide' phenomenon has increased the dollar's value. A foreign exchange authority official said, "The 'dollar smile' phenomenon, where the US dollar strengthens when US economic growth is higher than other countries or during a global recession, is currently occurring," adding, "Strong dollar trends may frequently appear until vaccines are evenly distributed worldwide and the global economy rises together."

However, since there is a large supply of dollars in the market, the consensus is that the possibility of excessive dollar strength is low. In the second half of the year, vaccine distribution may show similar patterns, and the recovery of the Chinese economy can help defend against the depreciation of emerging market currencies. Experts expect the won-dollar exchange rate to remain in the 1120 won range.

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