[KITA News] Won/Dollar Exchange Rate Rises 5 Trading Days in a Row to Low-1260s per Dollar

                                    

Won/Dollar Exchange Rate Rises 5 Trading Days in a Row to Low-1260s per Dollar

 

As the hawkish statements of U.S. Federal Reserve Board officials continue, the won/dollar exchange rate continues to climb 5 trading days in a row. As of February 8, 9:14 am, at the Seoul foreign exchange market, the won/dollar exchange rate is 1262.5 won/dollar, which is 2.4 won higher than that of the previous trading day (1260.1 won/dollar). On this day, the market opened with the exchange rate rising 1.4 won from the previous trading day. Immediately after the market opened, the exchange rate is raising its peak to as high as 1262.8 won/dollar. From February 3, the exchange rate continues to climb 5 trading days in a row.

The dollar rose slightly. On February 8 (local time), the Dollar Index, which indicates the value of the dollar against the currencies of the 6 major countries, closed at 103.335, which was 0.04% higher than the previous trading day. Investors focused on the hawkish statements of Fed officials (in preference of currency tightening) that were made the previous night. On this day, President of the US Federal Reserve Bank of New York John Williams, Member of the Federal Reserve Board of Governors Christopher Waller, President of the Federal Reserve Bank of Minneapolis Neel Kashkari stated one after another that interest rates should be raised, which resulted in the strengthening of the dollar.

John Williams, President of the US Federal Reserve Bank of New York and one of the three main figures at the FRB, said at an interview by the media on February 8 (local time), that in order to recover high inflation rates to the level before Covid19, during the next couple of years, the Fed must maintain key interest rates at a sufficiently constrained level.

Christopher Waller, member of the Federal Reserve Board of Governors, said at conference on agriculture held in the State of Arkansas on the same day, that the fight with inflation is not over yet, and a strong labor market could fuel consumer expenditure, which could maintain upward pressure on inflation. He added that interest rates will be higher than that expected by the market.

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis and a hardline hawk, remarked at the Boston Economic Club that there is not yet much evidence that interest rate raises are having an impact on the labor market. Because January employment is extremely hot, interest rates must continue to be raised in order to reach a balance in supply and demand. Recently, due to an improvement in employment indicators, expectations in the market about the early end of interest rate hikes by the U.S. FRB have dissipated in the market.

According to the Chicago Mercantile Exchange (CME) Fed Watch, the likelihood that interest rates would rise from March to May, about 0.25% points, was reflected as 70.9% in the Federal Fund (FF) Interest Rate Futures Market. Just a week ago, most had a higher expectation of 54.8% that interest rates would be raised in March, followed by a suspension thereafter, but the perception has changed greatly since then. If the Fed raises March and May interest rates 0.25% points each, the Fed’s policy interest rate would be 5.0-5.25%.

As the statement of Fed Chairman Jerome Powell of the previous day was subject to reinterpretation, there was the assessment that it had been hawkish. On February 7 (local time), at an event at the Economic Club of Washington DC, Chairman Powell said, “The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy.” “The reality is we’re going to react to the data. So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have do more and raise rates more than is priced in,” he added.

Again market interest is shifting to the U.S. January Consumer Price Index, which is announced on February 14. The CPI is the most important measurement of inflation levels used by the Fed. In December of last year, the CPI fell 5 months in a row, and if this trend were to continue in January, this could lead to a strength in the Korean Won.

Major indicators at the New York Stock Exchange closed down. On February 7 (local time), the Dow Joes Industrial Average fell 207.68 points (0.61%) from the previous day and closed trading at 33,949.01. The S&P 500 fell 46.14 points (1.11%) to 4117.86, while the NASDAQ fell 203.27 points (1.68%) to close at 11,910.52.

Despite the hawkish statements of the FRB officials, there was some discrepancy as bond interest rates dropped. On the same day, at the New York bond markets, the benchmark interest rate, which is the interest rate of the 10-year U.S. sovereign bonds, dropped 2.07% from the previous day to record 3.603%. The 2-year interest rate, which is sensitive to currency policy, dropped 0.74% from the previous year to close at 4.433%. “Today’s currency rate will probably show a weak but steady trend due to market response with expectations about a drop in inflation and hopes for a soft landing, despite the rally from the hawkish statements of the Fed officials,” said Kim Seung-Hyuk, NH futures researcher.

[Provided by Newsis]

By - KITA.Net (http://kita.org/about/newsView.do?id=&no=2763&searchWrd=&pageIndex=2)