Won-Dollar Exchange Rate Expected to Gradually Enter Speed Adjustment Phase... Peak in Q3

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Song Hwajeong] The steep upward trend in the KRW-USD exchange rate continues. Since the exchange rate has risen to an excessive level, it is expected to gradually enter a speed adjustment phase after peaking in the third quarter.

According to Hana Financial Investment on the 28th, the KRW-USD exchange rate has risen by about 20 won compared to the beginning of this month. The market has maintained a dollar-dominant supply-demand balance due to strong net selling of domestic stocks by foreigners, and risk-off sentiment has expanded amid concerns over a peak-out in the economy, driving the exchange rate higher. Jeon Gyu-yeon, a researcher at Hana Financial Investment, said, "The current pace of exchange rate increase is somewhat excessive. The Korean economy is still expected to achieve growth of around 4%, and due to concerns over the sharp depreciation of the won, foreign exchange authorities have also intervened. With the perception of a peak in the KRW-USD exchange rate, export companies' negotiation volumes are increasing, and the won's depreciation trend will gradually enter a speed adjustment phase."

The mild strength of the US dollar is expected to continue. Concerns about COVID-19 are also expected to periodically increase preference for safe-haven currencies such as the dollar, and in advanced countries, high vaccination rates mean the risk of breakthrough infections is not excessive. Concerns about a global economic peak-out are also limited. Researcher Jeon explained, "Ultimately, as economic activity and employment strengthen and inflationary pressures persist, the US Federal Reserve (Fed) will enter the preparation phase to start tapering (reducing asset purchases). The US dollar will reflect the possibility of the tapering becoming full-scale in its pricing."

Considering supply-demand factors and the intention to stabilize the exchange rate, the KRW-USD exchange rate is expected to stabilize after the third quarter. Hana Financial Investment forecasts the quarterly average KRW-USD exchange rate to be around 1,155 won in the third quarter and 1,150 won in the fourth quarter. Researcher Jeon said, "Due to the spread of COVID-19, the strength of the US dollar, and foreign capital outflows, the won is likely to remain relatively weak for the time being. However, if the Korean economy continues its growth centered on exports and investment, and vaccination rates increase limiting domestic demand shocks, the KRW-USD exchange rate will stabilize after the third quarter."

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