Dollar Value Hits Another Yearly High... 'US Tightening Prolongation' Outlook Spreads

Gukgeum Center "US Monetary Tightening Likely to Continue"

The value of the US dollar has once again reached its highest level of the year. As factors supporting the prolonged tightening by the US Federal Reserve (Fed) increase, the dollar's dominance is solidifying. The strong dollar trend is expected to continue for the time being, exacerbating instability in the domestic foreign exchange and financial markets.

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed) [Image source=Yonhap News]

The dollar index, which reflects the value of the dollar against six major currencies, rose to 106.84, marking the highest level since November last year. In mid-July, it was still below 100, but it has shown a steep upward trend over the past two months.

The dollar's dominance is also increasing concerns about exchange rate instability. The previous day, the won-dollar exchange rate rose intraday to 1,356.0 won, the highest level in about 10 months since November 21 last year (1,356.6 won). In response, the foreign exchange authorities expressed their intention to intervene if the exchange rate surges sharply, but it is expected to be difficult to regain stability easily.

The market expects the strong dollar trend to continue for the time being. On the 27th (local time), the US August durable goods orders showed a seasonally adjusted increase of 0.2% compared to the previous month, indicating continued strength. This significantly exceeded market expectations (-0.5%).

The International Finance Center stated in a report that "FHN Financial analyzed that despite consecutive interest rate hikes, economic growth and corporate investment expansion continue, and Barclays also argued that considering the manufacturing boom, the current US economy is far from recession," forecasting that US monetary tightening will persist.

If the US economy continues to show strength, expectations for additional Fed rate hikes will increase, potentially intensifying the strong dollar. Other major countries such as China and Europe are experiencing weak economies, making it difficult to curb the dollar's dominance.

The recent sharp rise in international oil prices is also a factor intensifying the strong dollar.

On this day, the closing price of November delivery West Texas Intermediate (WTI) crude oil futures was $93.68 per barrel, a 3.65% surge from the previous day's close, and November Brent crude oil futures closed at $94.36 per barrel, up 2.09% from the previous trading day's close.

Due to production cuts by Saudi Arabia and Russia, supply disruptions are increasing, and there are steady forecasts that international oil prices will soon exceed $100 per barrel. According to the US Energy Information Administration (EIA), US crude oil inventories, which can defend against sharp price increases, decreased by 2.2 million barrels compared to the previous week.

If the won-dollar exchange rate rises further due to the strong dollar, the burden on the Korean economy will increase. If domestic price instability continues due to rising import prices, the Bank of Korea will have no choice but to maintain high interest rates for a longer period, which could lead to a prolonged real economic downturn.

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