The US central bank (Fed) took a giant step to raise the benchmark interest rate by 0.75 percentage points on 21st (local time). This is the third consecutive high resistance squeeze after June and July. In addition, he mentioned the possibility of raising the base rate at the end of the year to 4.4%, higher than market expectations. As a result, the won-dollar exchange rate broke the 1,400 won threshold in the Seoul foreign exchange market for the first time in 13 years and 6 months on the 22nd. Lee Chang-yong, Governor of the Bank of Korea, said stated: “Expectations for the final interest rate in the United States (the end point of the interest rate hike cycle) have changed a lot,” and at a regular meeting of the Monetary Policy Committee in October, a ” big step forward (a 0.5 percentage point increase in the base rate at a time) “he stressed
Due to the Fed shock, the won-dollar exchange rate climbed 15 won 50 to close at 1,409 won and 70. It easily passed the 1,400 won and climbed to 1,413 won and 50 during the day. This is the first time the exchange rate has exceeded 1,400 won since March 20, 2009 (1,412 won 50 before), during the global financial crisis.
The Fed took the giant leap for the third consecutive time, raising the key interest rate from 2.5% per annum to 3.25% per annum (above). This is 0.75 percentage points higher than the Korean base rate, which is 2.5% per annum. According to the dot chart (an indicator showing the prospect of a rate hike) released by the Fed after the base rate hike, members of the Federal Open Market Committee (FOMC) predicted that the year-end base rate it will be 4.4% per annum, 1% higher than in June (3.4% per annum). As a result, there is a chance the Fed will take a giant leap and a big step in the next two FOMC meetings (November and December) this year. Fed Chairman Jerome Powell said the Fed will continue to raise interest rates until inflation reaches its 2% target.
Bank of Korea is also very likely to take a big step next month as soon as possible. Governor Lee said on the same day: “(simultaneously) the prerequisites for a 0.25 percentage point increase have changed a lot.”
Korea-US interest rate reversal ‘exchange rate seizure’ … 15 won leap in one day despite government warning
Oral intervention, anxiety cannot evolve … The problem is that the uncertainty persists
When the US central bank (Fed) revealed its willingness to tighten austerity beyond market expectations, Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho announced on the 22nd that “we will use all possible means of responding decisively and quickly to a one-sided (exchange rate) bias “. Lee Chang-yong, Governor of the Bank of Korea, also revealed the fact that the BOK and the National Pension Service are pursuing a currency exchange and said: “We are tilting too much (on one side) to our fundamentals.” It was a preemptive statement of verbal intervention when the won-dollar exchange rate was expected due to the Fed’s “hawkish (preferring monetary tightening)” move. However, that day, the won-dollar exchange rate did passed the 1,400 won level immediately after the foreign exchange market opened, and then broke through the 1410 won level during the day. The market now predicts that the exchange rate could threaten the 1,500 won level.
○ Government “Responds Resolutely to Currency Fluctuations”
Deputy Prime Minister Chu said on the same day at an emergency macroeconomic and financial meeting held at Bank Hall in Myeong-dong, Seoul, “We will actively manage short-term (exchange rate) volatility.” In a meeting with reporters immediately after the meeting, he said: “We will strictly adhere to the policy of responding decisively and quickly when necessary, using all possible means”.
Governor Lee revealed that the BOK and the National Pension Service are pursuing a currency exchange, saying, “We will be able to announce it soon.” When the BOK and the National Pension Service sign a currency exchange, when the National Pension Service invests in foreign stocks and bonds, instead of buying dollars directly from the Seoul exchange market, the BOK can deposit Korean won with the BOK and take in lending dollars from the BOK’s foreign exchange reserves to invest. In other words, the upward pressure on the exchange rate in the Seoul foreign exchange market is reduced. President Lee also said: “Compared to other countries, the exchange rate shows how worrying it is.” At the same time, referring to the diagnosis of Shin Hyun-song, director of the Investigative Bureau of the Bank for International Settlements (BIS), he said: “I think it best represents Korea’s point of view from abroad.” Director Shin said at a conference the day before: “Korea is included in the country where the currency has strengthened in terms of the real effective exchange rate.” The sharp rise in the current exchange rate is not due to the crisis in Korea, but to the strong dollar, and it means that the win is doing well against the currencies of other countries.
○ The market is restless, the exchange rate went up 15 won in one day
But the market was uncomfortable. The exchange rate in Seoul’s foreign exchange market started at 1,398 won, up 3 80 won from the previous day and immediately surpassed 1,400 won. After that, just before the close of the market, it ran up to 1,413 wins and 50, and then closed at 1,409 wins and 70. Based on the closing price, it increased by 15 wins and 50 wins over the previous day, and jumped of over 19 victories at noon. It is the first time in 13 years since March 20, 2009 (1,412 won 50) that the exchange rate has exceeded 1,400 won based on the closing price.
The market does not expect exchange rate uncertainty to end in the short term. This is because the US dollar is expected to strengthen when the Fed announces a stronger-than-expected tightening rate. According to Reuters, the dollar index, which shows the value of the dollar against the six major currencies, rose to 111.63, the highest level in 20 years since May 2002.
In the market, there is even a prediction that “If the 1,400 won line in the exchange rate is broken, the resistance line will disappear and, subsequently, can jump into units of 20 or 50 won” (Jung Yoo-tak, researcher at the Hana Financial Research Institute). Min Kyung-won, an economist at Woori Bank, said: “The upper limit of the exchange rate makes no sense now. Kim Seung-hyeok, researcher at NH Futures, said:” There is room for hikes up to 1,450. won and 1,500 won “.
The variable is the exchange authority. Not long ago, the government and the BOK seemed to ignore the sharp rise in the exchange rate. However, it has recently made clear its willingness to prevent the unilateral distortion of the exchange rate. Deputy Prime Minister Choo also said, “I can’t sit still” because of the sharp 15 exchange rate rise. As the won value is weakening (exchange rate rise) due to the strength of the global dollar, it is difficult to artificially dampen the weakness of the won, but it will control the rise in the exchange rate. Deputy Prime Minister Choo and President Lee delivered the same message at the macroeconomic and financial emergency meeting on the same day.
The existence or not of a currency exchange between Korea and the United States is also a large variable that can affect the exchange rate. The government is known to be pushing for a currency exchange between Korea and the United States to stabilize the foreign exchange market. However, it is unclear whether the US side will respond to the Korea-US currency swap.
Washington = correspondent Jeong In-seol / correspondent Jo Mi-hyeon / reporter Kang Jin-gyu [email protected]