Exchange Rate Returns to 1470 Won During the Day... Could It Hinder the February Rate Cut?

Surged Over 35 Won in 2 Trading Days

Dollar Strengthens Amid Trade War Expansion Concerns

Rate Cut Expected Despite Recession

High Exchange Rate May Increase Bank of Korea's Concerns

As Donald Trump, the President of the United States, enforced tariffs, the won-dollar exchange rate surged. This was analyzed as a result of the strengthening dollar value due to concerns that the global trade war could expand.

On the 3rd, in the Seoul foreign exchange market, the won-dollar exchange rate (as of 3:30 PM) ended weekly trading at 1467 won 20 jeon, up 14 won 50 jeon from the previous trading day (indicating a decline in won value). Considering the rise of 21 won 40 jeon on the 31st of last month, the exchange rate jumped 35 won 90 jeon in 2 trading days. The rate on this day was the highest in about 3 weeks since the 13th of last month (1470 won 80 jeon).

The exchange rate started at 1466 won, up 13 won 30 jeon, and rose to 1472 won 50 jeon in the morning. The dollar value rose after President Trump announced that tariffs would be imposed on Canada, Mexico, and China from the 4th. The won-dollar exchange rate partially gave back its gains in the afternoon.

Wi Jae-hyun, an economist at NH Futures, explained, "President Trump's statement that tariffs would be imposed not only on Canada, Mexico, and China but also on the European Union (EU) is a factor that encourages the selling sentiment of the won, a risky currency."

The yen also weakened against the dollar on this day, but the intensity was less than that of the won. The Japanese yen rose 0.44% to 155.35 yen per dollar. It was half the increase of the won-dollar exchange rate (1.0%). As of 3:30 PM, the won-yen cross rate was 944 won 27 jeon per 100 yen, up 5 won 29 jeon from the same time on the previous trading day, which was 938 won 98 jeon.

As the won-dollar exchange rate surged again, attention is focused on the Bank of Korea's interest rate decision scheduled for the 25th. Lee Chang-yong, the Governor of the Bank of Korea, explained the background last month when he froze the interest rate, saying, "The current exchange rate is much higher than what can be explained by economic fundamentals or the interest rate gap with the United States."

Baek Yoon-min, a senior research fellow at Kyobo Securities, said, "Although the volatility of the exchange rate has increased, the recent weakness of the won is more due to the difference in economic fundamentals between Korea and the United States," adding, "The Bank of Korea is likely to focus more on defending the economy and cut the interest rate by 0.25 percentage points at the February Monetary Policy Committee meeting."

Kang Jin-kyu, reporter josep@hankyung.com