Dollar-Won Falls to 1,338.5, With Further Declines Seen if US Inflation Eases
Summary
- The dollar-won exchange rate fell to 1,338.5 won, entering the 1,330 won range for the first time in a month, drawing attention to whether it will see a further decline.
- Brokerages said repeated upgrades to the domestic growth outlook have increased the factors pushing the exchange rate lower compared with the last time it traded in the 1,330 won range, raising the possibility of a further decline into the low- to mid-1,300 won range.
- This week’s US CPI and PPI readings could shift dollar strength and concerns over additional rate hikes, while oil prices and Middle East tensions are likely to keep the uptrend in South Korean government bond yields in place for the time being.
Forecast Trend Report by Period
The dollar-won exchange rate fell into the 1,330 won range for the first time in a month, sharpening focus on whether it has room to decline further. Selling of dollars by South Korean exporters is underpinning the won, while this week’s US inflation data is set to determine the currency’s next direction.
In Seoul trading on Oct. 8, the dollar-won rate stood at 1,338.5 won as of 3:30 p.m., down 1.9 won from the previous session. It was the first move into the 1,330 won range since Sept. 10. The dollar remained firm on European risks including France’s fiscal troubles, but local exporter selling pushed the exchange rate lower in the domestic market.
Brokerages also said an improved outlook for the South Korean economy is lending support to the won. Moon Da-woon, an analyst at Korea Investment & Securities, said there are now more factors pushing the exchange rate lower than when the dollar-won last traded in the 1,330 won range, citing continued upward revisions to South Korea’s growth outlook. Ha Geon-hyung, a research fellow at Shinhan Securities, said the exchange rate could decline further this week into the low- to mid-1,300 won range.
The key variables are the US consumer price index for September due on Oct. 14 and the producer price index due on Oct. 15. If price pressures ease, the burden from dollar strength could also diminish. On the other hand, if recent oil-price gains lifted inflation more than expected, concerns over additional US interest-rate increases could fuel demand for the dollar.
In the bond market, oil prices and Middle East tensions were cited as drivers of higher yields. South Korea’s three-year government bond yield rose 0.022 percentage point to 3.983% on Oct. 8. Ahn Ye-ha, an analyst at Kiwoom Securities, said yields are likely to keep rising for the time being because US-Iran tensions have not eased and oil prices have yet to reverse lower.
