Continued Rise in Won-Dollar Exchange Rate... Could Reach 1,200 Won per Dollar Within the Year

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[Asia Economy Reporter Song Hwajeong] The won-dollar exchange rate is showing a steep upward trend. The won-dollar exchange rate, which recently approached the 1180 level per dollar, is expected to rise to 1200 won within this year.

According to Yuanta Securities on the 21st, comparing the exchange rate fluctuations of major countries throughout this year, the depreciation of the won (exchange rate increase) was prominent. As of mid-August, the won experienced an 8.7% depreciation compared to the beginning of the year, showing the largest weakening among major currencies.

On the previous day in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1179.6 won per dollar, up 3.4 won from the previous day's closing price. This is the highest level in 11 months since the closing price of 1183.5 won on September 14 last year. During the session, it even rose to an intraday high of 1181.1 won. The exchange rate has risen by 10.6 won just this week.

Jeong Won-il, a researcher at Yuanta Securities, said, "Considering inflation and employment indicators, the likelihood of a base interest rate hike at the August Monetary Policy Committee is high, and given the economic environment that has not fully recovered, exchange rate volatility may increase."

With the continued spread of COVID-19 and low vaccination rates, the possibility of a sharp rise in consumer spending is low. The high savings tendency and willingness of the main consumer group, high-income young generations, may lead to an immediate contraction in consumption. The overall rise in producer prices is acting as a burden in terms of raw material prices and distribution costs. Researcher Jeong explained, "In fact, corporate profitability, considering both input and output prices, has recently experienced a sharp decline," adding, "A base interest rate hike is also a burden for additional facility investments." Although the export-import price index has surged, increasing trade volume, its contribution to growth is limited. Jeong analyzed, "As trade conditions worsen, the won-dollar exchange rate, which follows, is likely to shift toward won depreciation," and "There are concerns about dollar supply as the trade surplus narrows."

The strength of the dollar is expected to continue. The U.S. inflation and strong employment indicators are leading to tapering (asset purchase reduction), and despite the COVID-19 situation, confidence in the economic situation is expressed, resulting in strong dollar preference compared to other currencies. Researcher Jeong said, "Although a recent trend of dollar strength is appearing, the fact that it still remains at a lower level compared to after 2019 means that further strengthening movements may occur."

The won-dollar exchange rate is forecasted to rise to 1200 won within the year. Researcher Jeong predicted, "The domestic and international environment supports won depreciation, and using econometric models to estimate and forecast the won-dollar exchange rate, there is an additional upward pressure of about 3-5%. Reflecting this, there is room for the exchange rate to rise to around 1200 won within this year." He added, "The won depreciation trend is expected to continue at least until the first quarter of next year, reaching about 1230 won, and the point at which the won value can turn strong again will be after the second quarter of next year."

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