Input 2021.02.16 06:00
The exchange rate fell by over 20 won for 4 trading days… “Expectation for US economic recovery”
1080 won short-term low… “The outlook for Korean domestic demand is dark, so there will be no sharp decline”
On the 15th, right after the Lunar New Year holiday, the won-dollar exchange rate fell to a level close to 1,100 won, raising concerns over a further plunge in the exchange rate. The US economic stimulus plan and the slowing spread of the novel coronavirus infection (Corona 19) could accelerate the weakening of the dollar due to risk preference.
However, unlike the US economy, the Korean economy is a so-called’semiconductor optical illusion’, and there is an analysis that the weakening factor of the won remains, as it is still not able to guarantee a recovery trend centered on domestic demand.
On this day, the won-dollar exchange rate in the Seoul foreign exchange market ended at 1101.4 won, down 5.6 won from the previous trading day. This is the lowest in 15 trading days since the 21st of last month (1098.2 won).
The recent decline in the exchange rate is because expectations for the US economic recovery are rising, and the dollar is weakening. On the 13th (local time), the dollar index against the currencies of six major countries was 90.45, down 1.2% from the 5th (91.55). The top three stocks in New York reached an all-time high on the 12th (local time) during the Lunar New Year holiday, and then the risk preference continues, with Bitcoin rising close to $50,000. This is because the number of new corona19 confirmed cases in the U.S. has slowed, vaccination is speeding up, and the Biden government’s economic stimulus plan is about to pass the House of Representatives.
The market is forecasting the low of the exchange rate at the 1080~1090 won range. Considering that the existing low is in the early 1080 won range, it is in the mood for an additional downward trend after breaking down from 1110 won this week. It is evaluated that the US consumer price index (CPI) rose 0.3% MoM, recording an uptrend for three consecutive months, reflecting the expectation of an economic recovery. This also reflects the rise in international oil prices to nearly $60 per barrel.
Baek Seok-hyun, a researcher at Shinhan Bank, said, “Expectations for economic normalization are increasing due to the recent slowdown in the spread of Corona 19,” he said. “I think we might try to drop by putting the existing low of 1080 won at the bottom.”
However, in the market, the possibility of a recent sharp decline is not large. It was noted that the expectations for the domestic economy were not relatively high compared to the US. This is because exports on the 1st to 10th of this month increased 69.1% YoY, while the indicators linked to the global economy are showing strong performance, while the outlook for the domestic economy is dark. Despite the weak dollar, there are not many materials that can lead the won to a steep strength, according to experts in the foreign exchange market.
At the Monetary Policy Direction meeting of the Bank of Korea last month, concerned about the’semiconductor optical illusion effect’ this year, the Bank of Korea’s financial and monetary committee members said, “We must consider growth momentum excluding semiconductors.” In addition, the Korea Development Institute (KDI) analyzed in the’February Economic Trends’ on the 7th that “consumption and employment have drastically decreased due to the re-proliferation of Corona 19, and the economic slump is continuing, centered on domestic demand.”
Seo Jeong-hoon, a researcher at Hana Bank, said, “The current account surplus led by large exporters with increased profits centered on semiconductors can significantly distort the entire economy. If decoupling occurs between the Korean-American economy, the exchange rate may not fall that much even if the dollar weakens. “I said.