Won-Dollar Exchange Rate Breaks Key Level Again, How High Will It Go?

US Treasury Yield Rise, Yuan Weakness and Other Strong Dollar Factors
"Risk of Rising to 1400 Won Level"

As the dollar continues to strengthen, the won-dollar exchange rate has hit new highs for two consecutive days. Concerns over the prolonged high interest rate policy of the U.S. Federal Reserve have led to forecasts that the exchange rate could rise to the 1400-won level within this year.

As of 10:54 a.m. on the 27th in the Seoul foreign exchange market, the won-dollar exchange rate is trading at 1352 won per dollar.

On that day, the exchange rate opened at 1355 won, up 6.5 won from the previous day (1348.5 won), and quickly surpassed the previous day's record high (1349.5 won) by rising to 1356 won in the early session.

Following last week's Federal Open Market Committee (FOMC) regular meeting, Chairman Jerome Powell hinted at a prolonged U.S. tightening policy, and with expectations that the timing of interest rate cuts will be delayed, U.S. Treasury yields have risen and the global dollar has also shown strength. Overnight, the 10-year U.S. Treasury yield reached 4.56% at one point during trading, marking the highest level in 16 years. The dollar index rose 0.21% from the previous session to 106.17.

Experts predict that the exchange rate will continue its upward trend for the time being. Park Sang-hyun, a researcher at Hi Investment & Securities, explained, "If U.S. Treasury yields continue to rise, the dollar will naturally maintain its strength, and the won will inevitably continue to weaken."

The recent weakening of the yuan is also a negative factor. The depreciation of the yuan can drag down the value of the won, which is considered a 'proxy currency' for the yuan. Researcher Park said, "Although the offshore yuan exchange rate is not rising above 7.3 yuan per dollar, if China's economy continues to weaken and the depreciation persists, the won will inevitably follow, posing a clear risk that the won-dollar exchange rate could rise to the 1400-won level within the year."

While the strong dollar phenomenon is expected to continue, some forecasts suggest the upper limit may be capped. Kim Yumi, head of the investment strategy team at Kiwoom Securities Research Center, said, "It is necessary to keep the upper range open to the high 1300 won level in the fourth quarter," but added, "Considering that the Fed's tightening is in its later stages, the dollar's rapid rise is likely to be limited, and the probability of a sharp surge above 1400 won is low."

[Image source=Yonhap News]

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