Trump's Impact... Won-Dollar Exchange Rate Enters 1430 Range After a Month [Hankyung Forex Market Watch]

The won-dollar exchange rate fell to the 1430 range (Korean won value increased) after a month. The dollar showed a weak trend as Donald Trump, the President of the United States, did not impose tariffs on his first day in office.

On the 21st, the won-dollar exchange rate in the Seoul foreign exchange market (as of 3:30 PM) ended weekly trading at 1439.50 won, down 12.20 won. It is the first time in about a month since the exchange rate entered the 1430 range on the 18th of last month (1435.50 won).

The exchange rate fell to 1432.90 won early in the day as it was confirmed that there were no administrative orders related to tariffs. However, during a press Q&A session, it was mentioned that a 25% tariff would be imposed on Mexico and Canada on the 1st of next month, leading to a rise, reaching 1443.90 won at one point in the morning. Later, as dollar selling from exporters flowed in and it became known that President Trump's remarks were not definitive, it closed in the 1430 range per dollar.

The dollar index, which indicates the value of the dollar against the currencies of six major countries, showed a similar trend. The dollar index, which fell to 107.86 early in the day, surged to 108.75 and then fell back to 108.43. Lee Joo-won, an economist at Daishin Securities, said, "The fact that universal tariffs were not imposed on the first day of office eased the anxiety in the foreign exchange market," but added, "There is a possibility of increased volatility as policies such as investigating unfair trade practices are materialized."

There is an assessment that the possibility of the exchange rate soaring again has decreased. Nomura of Japan, which predicted that the won-dollar exchange rate would rise to 1500 won around May, changed its stance in a report that day, stating, "The probability of reaching 1500 won per dollar has decreased compared to before." There is also a forecast that if radical tariff policies such as universal tariffs do not emerge, the won-dollar exchange rate could fall to the 1300 range in the second half of the year.

As the exchange rate shows a calming trend, the possibility of the Bank of Korea lowering interest rates in February has increased. The Bank of Korea recently froze rates on the 16th due to the sharp rise in the exchange rate.

In line with this outlook, government bond yields fell across the board (bond prices rose) that day. In the Seoul bond market, the yield on 3-year government bonds fell by 0.044 percentage points to 2.579% per annum compared to the previous day. The yields on 5-year and 10-year bonds also fell by 0.037 percentage points and 0.050 percentage points, respectively, ending trading at 2.678% and 2.818% per annum.

The stock market fell slightly. The KOSPI index closed at 2518.03, down 0.08%. The KOSDAQ index ended the day at 726.07, down 0.22%. The stock market rebounded after a decline but failed to turn upward.

The market views that various policy uncertainties of Trump could exert downward pressure on the domestic stock market. Lee Jae-won, a researcher at Shinhan Investment Corp., said, "Foreigners who started net buying early in the day turned to net selling after the announcement of additional tariffs, increasing downward pressure on the stock market."

Kang Jin-kyu/Ryu Eun-hyuk reporters josep@hankyung.com