[Good Morning Stock Market] Uncontrollable 'King Dollar'... Won-Dollar Exchange Rate May Break 1400 Won

US Stock Market Closed
Currency Risk Causes KOSPI to Fluctuate
"Dollar Rally to Continue Even if Europe Raises Interest Rates"

[Asia Economy Reporter Minji Lee] Due to the won-dollar exchange rate rising to levels seen during the 2009 financial crisis, the KOSPI showed a chaotic pattern, falling below the 2400 mark during the trading session yesterday. Experts predict that considering the European economic crisis, the strong tightening stance of the U.S., and the widening trade deficit in August, the dollar's dominance is expected to continue for the time being. Meanwhile, the U.S. New York Stock Exchange was closed on the 5th (local time) due to Labor Day.

Jeon Gyu-yeon, Hana Securities Researcher: “It is difficult to find resistance levels for the won-dollar exchange rate; we must keep the door open up to 1,400 won.”

Aside from the Federal Reserve's (Fed) strong tightening policy, the key factor determining the dollar's direction is the euro. The ECB monetary policy meeting will be held in September. At the July meeting, the ECB raised interest rates by 50 basis points (1bp = 0.01%P), and this time, there is a high probability of a giant step (raising rates by 75bp). The interest rate hike will raise the policy rate to 1.25% (if increased by 75bp), somewhat narrowing the interest rate gap between the U.S. and Germany, which supports the euro's downside, but it is insufficient to stop the dollar's strength.

Considering the possibility of economic deterioration in the Eurozone after tightening and adverse factors surrounding the Eurozone such as Russia's natural gas supply suspension, the euro is expected to continue weakening. Recently, Eurozone countries including Germany have been increasing gas reserves and diversifying energy use faster than expected, reducing the likelihood of an energy crisis, but the supply is still not sufficient to comfortably get through the winter.

Currently, the yuan-dollar exchange rate stands at 6.9 yuan, reflecting the Chinese economy and the re-inversion of the interest rate gap between the U.S. and China, and the widening trade deficit in Korea in August is also driving the won's depreciation phase. Although authorities' intervention and response willingness are increasing, there is no proper resistance level at the current exchange rate. Considering supply and demand concentration, the upper limit of the won-dollar exchange rate could rise to 1,400 won.

Park Sang-hyun, Hi Investment & Securities Researcher: “Foreign exchange market instability ultimately stems from economic risks.”

Amid the energy crisis, the euro and pound plummeted, and the yuan also fell due to concerns about China's economic slowdown. Regarding the Chinese economy, concerns about growth rates in Q3 and Q4 are increasing due to strengthened zero-COVID policies in major cities. As China locked down 33 cities to prevent a resurgence of COVID-19, the yuan's depreciation widened. The lockdown of Shenzhen, a major city with 18 million people and China's technology hub, is a severe blow to the Chinese economy.

With the Party Congress scheduled for the 16th of next month, authorities are making every effort to prevent the spread of COVID-19 in Beijing, so strong lockdown measures in major cities like the current ones are likely to continue until next month. Accordingly, the yuan-dollar exchange rate is increasingly likely to exceed 7 yuan earlier than expected.

The worsening ICT industry cycle has further stimulated the rise in the won-dollar exchange rate. The main cause is the beginning of instability in semiconductor exports to China and Hong Kong, which rank first and third in domestic semiconductor exports. Semiconductor exports to Hong Kong recorded a 43.2% decrease in July compared to the same month last year, and the cumulative exports this year also decreased by 17.6% compared to the same period last year.

Furthermore, the lockdown of Shenzhen, known as China's technology hub, is expected to have an additional negative impact on semiconductor exports to China and Hong Kong. As warning signs grow in the domestic semiconductor ICT industry cycle, it is also negatively affecting the won's value.

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