US Tightening Draws Sword... Exchange Rate Surpasses 1200 Won

Dollar Strength Expected to Continue Through the Second Half of the Year

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Following the Federal Reserve's (Fed) interest rate hikes and indications of quantitative tightening, the KRW-USD exchange rate surpassed 1,200 won. As the Fed's monetary tightening pace accelerates beyond expectations, forecasts suggest that the dollar's strength seen earlier this year will solidify.

On the 6th, the KRW-USD exchange rate opened at 1,200.9 won, up 4 won. This is the first time since July 27, 2020 (1,201.2 won) that the opening rate exceeded 1,200 won. The intraday rate surpassed 1,200 won for the first time in three months since October 12 last year (1,200.4 won). However, the rise narrowed afterward, and trading continued around the 1,199 won level.

The significant factor behind this is the Fed's indication of the possibility of implementing QT (quantitative tightening), which involves reducing the balance sheet beyond just tapering (reducing asset purchases).

With the U.S. actually tightening the money supply, the dollar's strength is expected to continue going forward.

Regarding this, Oh Changseop, a researcher at Hyundai Motor Securities, analyzed, "Quantitative tightening actually reduces the money supply itself, which acts as a factor strengthening the pressure for dollar appreciation. It is expected to stabilize around the 1,200 won level in the first half of the year, and the dollar's strength is likely to continue in the second half as well."

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