The U.S. dollar is showing an extraordinary strength as inflation concerns grow around the world. On the contrary, the won’s value declined. The won-dollar exchange rate exceeded 1140 won per dollar in five months. As interest rates rise, there is growing concern that preference for US Treasury bonds will rise and that capital outflows will continue in emerging economies.
It is observed that the won-dollar exchange rate is highly likely to soar to more than 1150 won in the short term.
○“The US economy recovers first”… Stronger dollar
The dollar index, which shows the value of the dollar against six currencies such as euro, yen, and pound, recorded 92.42 in the New York foreign exchange market on the 8th (local time). It has increased by 0.44 points compared to the previous day. Compared to January 5 (89.44), which was a short-term low, it jumped 3.3%. The dollar value is the highest in three months since the end of November last year.
The dollar index steadily declined after peaking (102.82) on March 20 last year, just after the announcement of the pandemic (a global pandemic of the pandemic). This is because the US government has issued large amounts of government bonds several times, and the US central bank (Fed) has also implemented an aggressive monetary easing policy.
However, it is unusual for the dollar to rise even though the US Congress recently voted for an additional $1.9 trillion in stimulus. This is because it is common sense that the value of the dollar will weaken when the dollar is released a lot in the market.
The analysis prevails that the dollar’s movement in the opposite direction of market forecasts is due to the rapid recovery of the US economy. In the United States, thanks to widespread vaccination, not only income and consumption, but also employment indicators are improving. It is more likely to normalize faster than other economies such as Europe and Japan. Marios Hajikiriakos, an analyst at investment firm XM, said, “First of all, the surprise recovery of the US labor market has fueled the strength of the dollar.”
The impact of rising US Treasury yields cannot be ruled out. As the yield of U.S. Treasury bonds, one of the representative safe assets, surged, global capital is flowing into the U.S. market. The US 10-year Treasury bond yield was 1.59% a year on the same day, up 0.03 percentage points from the previous day. It has soared 0.5 percentage points only since last month. Edward Moya, an analyst at Oanda, a foreign exchange brokerage firm, said, “If US Treasury yields rise, there is a high possibility that demand for the dollar will expand further.”
The US government is not concerned about the strong dollar. Commerce Secretary Gina Raymondo made it clear that he would not intervene in the market, saying, “A strong dollar is good for the US economy.”
○ How much more will the won-dollar exchange rate rise?
In the Seoul foreign exchange market on the 9th, the won-dollar exchange rate rose 7 won and 10 points (the value of the won decreased) and ended 1140 won and 30 dollars per dollar. It was the highest since last year’s October 19th (1142 won). The exchange rate soared 48 won and 30 before this day.
Experts saw that the exchange rate could rise to the 1150 won mark in the short term. Park Sang-hyun, a researcher at Hi Investment & Securities, said, “The exchange rate jumped as the US market interest rate rises and foreign investments’ departures from the domestic stock market overlapped.”
However, the overall mood of the market is that the won-dollar exchange rate will not rise to the 1,200 won range. The KRW-USD exchange rate of 1,200 won is said to be the level of exchange rate that will appear only in crisis situations such as the global financial crisis and the Corona 19 crisis. Market participants believe that the rise in the exchange rate (decrease in the value of the won), which appears in the process of normalizing the economic situation, will not last for a long time.
However, the government is keenly aware of the movement of the financial market. At the macroeconomic and financial meeting held on the day, Kim Yong-beom, the first vice minister of the Ministry of Strategy and Finance, said, “As economic activities that had shrunk rapidly due to the infectious disease resume, the possibility of inflation is raised.” It can appear,” he warned.
New York = Correspondent Jaegil Cho/Reporter Ikhwan Kim [email protected]