Won-Dollar Exchange Rate Surges Intraday to 1288.9 Won... Verbal Intervention Reverses Gains (Comprehensive)

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] On the 13th, the KRW-USD exchange rate closed at 1,284.0 won, up 15.1 won from the previous trading day's closing price.

On that day, in the Seoul foreign exchange market, the KRW-USD exchange rate surged intraday to 1,288.9 won, rising 20 won from the previous day's closing price. The recent peak was 1,291.5 won, recorded intraday on May 12.

The exchange rate increase was driven by concerns that the U.S. Federal Reserve (Fed) might further tighten monetary policy in response to the highest consumer price inflation rate in 41 years (8.6% year-on-year in May) in the U.S.

With the Fed signaling a ‘big step’ of raising interest rates by 0.50 percentage points at once in June and July, the possibility of a ‘giant step’ (0.75 percentage points hike) has emerged ahead of the Federal Open Market Committee (FOMC) regular meeting scheduled for June 14-15, increasing volatility.

The foreign exchange authorities immediately engaged in verbal intervention. Around 1:35 p.m. that day, the Ministry of Strategy and Finance’s Kim Seong-wook, Director of International Finance, and the Bank of Korea’s Kim Hyun-ki, Director of the International Department, jointly stated, "The government and the Bank of Korea are closely monitoring the excessive volatility of the won in the domestic foreign exchange market with special vigilance," adding, "The foreign exchange authorities will strive to prevent intensified herding behavior caused by psychological overreactions in the market."

Subsequently, Deputy Minister of Strategy and Finance Bang Ki-seon held an emergency macroeconomic and financial inspection meeting in the afternoon with departments related to macroeconomics and finance within the ministry, stating, "We plan to hold a macroeconomic and financial meeting with the Financial Services Commission, the Bank of Korea, and the Financial Supervisory Service in line with the results of the U.S. June FOMC to be announced on the 16th."

Deputy Minister Bang diagnosed, "Skepticism about the global inflation peak-out theory is expanding, increasing uncertainty about the magnitude and pace of interest rate hikes in major countries, which is raising volatility in domestic and international financial markets." He emphasized the need to pay close attention to global inflation and monetary policy normalization schedules and to maintain special vigilance while closely monitoring the financial and foreign exchange market situation.

The KRW-USD exchange rate fell back to the mid-1,280 won level as the foreign exchange authorities’ verbal intervention curbed the rise.

Kim Young-hwan, a researcher at NH Investment & Securities, explained, "As inflationary pressures persist in the U.S., concerns are spreading that the Fed may strengthen the tightening intensity further or raise the benchmark interest rate by 0.75 percentage points at once, continuing strong tightening for a longer period. If aggressive rate hikes are actually implemented, the interest rate differential between Korea and the U.S. could widen significantly, which has led to the rise in the KRW-USD exchange rate and a weak KOSPI."

A Bank of Korea official said, "The main cause of the exchange rate rise is the caution ahead of the FOMC due to the U.S. high inflation shock," adding, "As risk-averse sentiment strengthens, the strong dollar phenomenon continues, and monitoring is being intensified."

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