"Trump One-Man Show... Must Keep Exchange Rate at 1500 Won Level in Case of Overshooting"

Throughout February, the USD/KRW exchange rate is expected to fluctuate between 1,420 and 1,480 won, reflecting a volatility-driven market led by U.S. President Donald Trump. Since the Federal Reserve (Fed) will not make any monetary policy decisions this month, the development of policies such as the so-called 'Trump tariffs' is anticipated to be the most sensitive factor affecting the exchange rate. There are also suggestions that in the event of a temporary overshooting, it is necessary to keep a meaningful upper limit open up to 1,500 won.

Moon Da-woon, a researcher at Korea Investment & Securities, stated in his February 5 report titled 'FX Note February Preview: Trump One-Man Show' that "February is expected to be a volatility-driven market led by Trump," and "the USD/KRW exchange rate will generally move within a rigid box range of 1,420 to 1,480 won on the downside." He added, "The high uncertainty surrounding Trump's tariff policies strongly supports the lower bound of the exchange rate," and predicted that "depending on the policy developments, the exchange rate will either surge sharply or quickly give back the gains."

Earlier, President Trump signed an executive order on February 1 imposing high tariffs on Canada, Mexico, and China, but just a few days later, he granted a one-month tariff exemption for Canada and Mexico. As a result, the USD/KRW exchange rate, which had surged to the mid-1,470 won range, has narrowed its gains to the 1,450 won level.

Researcher Moon pointed out, "The exchange rate is really unstable due to the unpredictable Trump," and added, "Although a one-month negotiation period has been secured, the threat of tariffs remains." He explained, "In addition to Mexico, Canada, and China, the possibility of universal tariffs and prolonged high tariffs cannot be completely ruled out," and "During the one-month tariff exemption, the exchange rate will inevitably fluctuate sensitively depending on Trump's words and actions and the negotiation process."

On the other hand, sensitivity of the exchange rate to major indicators has somewhat diminished. Regarding this, Researcher Moon analyzed that this is because the Fed's Federal Open Market Committee (FOMC) will not meet in February and the market has already priced in a conservative rate cut path. He diagnosed, "If this week's U.S. employment data (Labor Department employment report) does not significantly deviate from market expectations and does not clearly weaken, there is no suitable trigger in the short term to substantially adjust the market's hawkish expectations and strong dollar pressure."

In conclusion, it is analyzed that throughout February, the foreign exchange market will see a rigid lower bound and dominant upward pressure on the exchange rate due to uncertainties led by President Trump. He also noted, "Although the possibility is limited, in the event of a temporary overshooting, it is necessary to keep a meaningful upper limit open up to the big figure of 1,500 won."

Along with this, Researcher Moon stated, "The inherent weakness pressure on the won due to political instability is gradually calming down," and evaluated, "Of course, concerns about Korea's growth rate remain, but the government's early fiscal spending and the Bank of Korea's Monetary Policy Committee's accommodative stance are already defending against downward pressure. The February rate cut expectation by the Monetary Policy Committee, which seems to have been already priced in, is more likely to add to hopes of easing economic downturn rather than being a factor for further exchange rate increases."

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