US $1 Trillion Infrastructure Investment Passed, Korea COVID-19 Cases at 2,200s... Exchange Rate Rises (Comprehensive)

On the 11th, the won-dollar exchange rate traded in the mid-1150 won range during the session

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] As the COVID-19 Delta variant spreads globally, the U.S. economic recovery is showing a significantly faster pace compared to other countries, supported by vaccine distribution and fiscal stimulus measures, leading to a strong U.S. dollar. Amid this, domestic daily new COVID-19 cases have exceeded 2,200, increasing uncertainty and pushing the KRW-USD exchange rate back above the 1,150 won level.

As of 10:04 a.m. on the 11th in the Seoul foreign exchange market, the KRW-USD exchange rate is trading at 1,154.59 won, up 4.79 won from the previous trading day. The KRW-USD rate opened at 1,153.50 won, up 3.7 won from the previous day, and has been moving in the low to mid 1,150 won range while increasing its gains. The highest intraday KRW-USD rate this year was on the 28th of last month at 1,157.3 won.

Recently, the global financial market has seen a continued trend of a strong U.S. dollar. This is due to a preference for safe-haven assets amid the spread of the Delta variant and expectations that the U.S. will begin tapering (reducing asset purchases) as early as the end of this year, based on its faster economic recovery compared to other countries. Charles Evans, President of the Federal Reserve Bank of Chicago, stated at an online press conference on the 10th (local time), "Considering the improvement in employment indicators, the environment for tapering could be met around the end of this year." He also added that he would like to check employment data a few more times before making a tapering decision.

As of 9:06 p.m. Eastern Time on the same day, the U.S. Dollar Index is recording 93.14, up 0.09% from the previous closing price. The Dollar Index, which was in the high 80s in early June, began to rise in July and August.

The passage of the $1 trillion (approximately 1,155 trillion won) infrastructure budget bill by the U.S. Senate is also fueling the dollar's strength. With the bill's approval, expectations for a stronger U.S. economic recovery have increased, causing U.S. Treasury yields to rise (bond prices fall), which in turn is giving additional strength to the dollar. The 10-year U.S. Treasury yield is at 1.359%, up 1.7 basis points (1 bp = 0.01 percentage points) from the previous day.

President Joe Biden [Photo by AP News]

While large-scale fiscal stimulus may increase national debt in the long term and negatively affect the dollar's value, the market seems to focus on the stimulus accelerating the U.S. economic recovery. In particular, the relatively faster pace of the U.S. recovery compared to Europe is interpreted as a reason for the dollar's strength.

Kim Sungtaek, Head of the Global Economy Department at the International Finance Center, explained, "Although the passage of the infrastructure bill will increase the fiscal deficit in the mid to long term, which could negatively impact the dollar's value, the expectation that the U.S. economy will not deteriorate has led to the dollar's strength." He also noted that the U.S. Consumer Price Index (CPI) for July is scheduled to be released tonight, and there is a high possibility that the CPI inflation rate will again be high, which seems to be reflected in Treasury yields. The July CPI inflation rate is expected to be around 5.3%.

Additionally, Kim said, "The dollar's value is influenced by interest rates but also significantly affected by differences in economic performance between countries. Until Europe or emerging markets show remarkable catch-up growth, the dollar is likely to remain strong."

Meanwhile, the domestic daily new COVID-19 cases exceeding 2,200 is relatively weakening the won's value, further driving up the KRW-USD exchange rate. Kwon Deokcheol, First Deputy Head of the Central Disaster and Safety Countermeasures Headquarters (CDSCH) and Minister of Health and Welfare, stated at the CDSCH meeting, "As of midnight today, the number of new COVID-19 cases has exceeded 2,200, which is 'an unprecedented event' since the first outbreak in January last year."

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