Rising Won-Dollar Exchange Rate Again... Focus on US Economic Indicators and FOMC Minutes

On the 26th of last month (local time), a trader is working while Federal Reserve (Fed) Chairman Jerome Powell's speech is displayed on the New York Stock Exchange (NYSE) screen in the United States. [Image source=Yonhap News]

The won-dollar exchange rate, which has risen to its highest level in over two months, is expected to attempt to surpass 1,330 won next week.

According to the Seoul foreign exchange market on the 13th, the won-dollar exchange rate has recently shown a steep upward trend. Based on closing prices, it rose from 1,274.6 won on the 31st of last month to 1,324.9 won on the 11th, an increase of 50.3 won in about two weeks.

At the beginning of the week, the won-dollar exchange rate was in the low 1,300 won range but has settled in the 1,320 won range. The closing price on the 11th was the highest level in over two months since May 31 (1,327.2 won).

A strong dollar has recently been a factor driving the exchange rate up. Although the U.S. July Consumer Price Index (CPI) inflation rate was 3.2% year-on-year, slightly lower than the market expectation of 3.3%, core inflation remains at a high level, leading to increased analysis that the Federal Reserve's (Fed) high interest rates may persist for a long time. As a result, government bond yields rose, increasing demand for the dollar and raising its value.

Seunghyuk Kim, a researcher at NH Futures, explained, "After the inflation data release, the dollar plunged but rebounded sharply as U.S. Treasury yields surged. San Francisco Fed President Mary Daly also stated that it is difficult to declare victory based on this inflation result and that continuous efforts are needed, which led to strong government bond yields."

The market still expects the Fed to keep the benchmark interest rate unchanged at the September Federal Open Market Committee (FOMC) meeting. According to the Chicago Mercantile Exchange (CME) FedWatch, there is a 90% probability that the Fed will maintain the current rate of 5.25-5.5% next month.

Therefore, the market seems to be focusing on how long the Fed will maintain the current interest rate.

First, U.S. retail sales for July will be announced on the 15th. Economists expect the July retail sales growth rate to be 0.4%, higher than June's 0.2%. If consumption continues to rebound, expectations for a soft economic landing will increase, potentially sustaining the dollar's strength.

Additionally, the minutes of the July FOMC meeting will be released on the 17th. At that meeting, the FOMC raised the benchmark interest rate by 0.25 percentage points. Since opinions among Fed officials on the tightening monetary policy remain sharply divided, the members' views are expected to have a significant impact on the dollar and exchange rates.

Fed Chair Jerome Powell said on the 26th of last month (local time) that "depending on upcoming data releases, the Fed may raise or hold steady the benchmark interest rate at the September meeting."

Moreover, housing indicators such as U.S. new housing starts and home prices are also scheduled for release. The U.S. housing market has recently shown signs of improvement. If housing indicators continue to be positive, they could also support the Fed's prolonged tightening policy.

Meanwhile, China's July industrial production and retail sales data, to be released on the 15th, are also important. Recently, China's economic indicators have been weak, causing the yuan to weaken. Since the won tends to move in tandem with the yuan, this could also affect the won-dollar exchange rate.

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