As the political situation becomes tumultuous following the imposition of martial law and the passing of the president's impeachment bill, the foreign exchange market is fluctuating. The won-dollar exchange rate, which was around 1,400 won, surpassed 1,440 won during trading right after the martial law and is currently fluctuating in the 1,430 won range. Concerns are being raised that the exchange rate could rise sharply if it enters a full-scale impeachment phase.
What was the trend of the exchange rate in 2004 and 2016 when impeachment proceedings were underway against former Presidents Park Geun-hye and the late Roh Moo-hyun? During the impeachment of former President Park, the exchange rate jumped over 44 won after the impeachment bill passed the National Assembly, but stabilized with the acceptance of the impeachment. In the case of former President Roh, the exchange rate rose by more than 10 won on the day the impeachment bill was passed and on the day the impeachment dismissal ruling was issued.
◇ Difference of 80 won between Park's impeachment low and high... 48 won fluctuation for Roh
According to Seoul Foreign Exchange Brokerage on the 17th, the exchange rate fluctuated significantly for 91 days from November 2016, when the impeachment trial of former President Park Geun-hye was decided, until March the following year when the Constitutional Court's decision to accept the impeachment came out. The difference between the highest exchange rate (Dec. 28, 2016, 1,210.5 won) and the lowest (Feb. 28, 2017, 1,130.7 won) was 79.8 won, based on the closing price (3:30 p.m.).
Initially, on Dec. 5, shortly after the opposition party submitted the impeachment bill for former President Park on Dec. 3, 2016, the closing exchange rate was 1,174.6 won, up 2 won from the previous transaction day. On Dec. 9, when the impeachment bill was passed, the closing exchange rate dropped to 1,165.9 won. It then steadily increased, reaching 1,210.5 won on Dec. 28, just 14 transaction days after passing the National Assembly.
The exchange rate, which had been volatile, showed signs of stabilizing during the impeachment trial. On Feb. 14, 2017, when the defense of former President Park was underway, it fell to 1,137.4 won, and dropped to 1,130.7 won on Feb. 28 when the first deliberation of the Constitutional Court took place. It gradually rose afterward, closing at 1,157.4 won on Mar. 10 when the president's impeachment was ratified.
During the impeachment crisis of former President Roh Moo-hyun from March to May 2004, the exchange rate moved more than 40 won over 64 days. On Mar. 12, when the impeachment bill was passed at the National Assembly's plenary session, the exchange rate closed at 1,180.8 won, up 11.8 won from the previous day. It was the highest since Jan. 20 (1,188 won), about two months prior. However, it fell to 1,154.5 won by Mar. 29, ahead of the first defense by Roh's side.
The exchange rate then took another roller coaster ride. On Apr. 8, a day before the third defense, the exchange rate dropped to 1,140.4 won and then surged again, reaching 1,170.7 won on Apr. 29, when the defense was concluded. It soared to 1,188.5 won on May 11, ahead of the Constitutional Court's final ruling. The difference between the highest exchange rate (May 11, 2004, 1,188.5 won) and the lowest (Apr. 8, 1,140.4 won) was 48.1 won.
◇ U.S. FOMC and tariff policy variables... “Need to keep the exchange rate ceiling open”
In the current impeachment crisis, it is highly likely that the exchange rate will fluctuate during the defense by President Yoon's side and the deliberations of the Constitutional Court. The current exchange rate has risen to the 1,430 won range with the declaration of martial law by President Yoon Suk-yeol, the opposition's submission, withdrawal, and passage of the impeachment bill. If the exchange rate fluctuates by 40-80 won as before, it cannot be ruled out that the exchange rate may exceed 1,450 won.
Apart from the impeachment situation, there is also potential for a surge in the dollar's value ahead of the inauguration of U.S. President-elect Donald Trump in January next year. Trump pledged during the election campaign to impose a universal tariff of up to 20% on imports within the U.S. If such a tariff policy is realized, it is highly likely that U.S. import prices will soar, interest rate cuts will be delayed, and a strong dollar will become more pronounced.
Research Institute at Daishin Securities, Jong-gu Cho, suggested the maximum level of the won-dollar exchange rate at 1,465 won. In this regard, Cho noted, “The worst situation caused by political issues is over as the impeachment bill was passed by the National Assembly. However, there is a possibility that the Dollar Index, which indicates the dollar's value against the currencies of six major countries, might rise due to the influence of President-elect Trump.”
Park Sang-hyun, a Research Institute at iM Securities, said, “I see the exchange rate ceiling at 1,450 won.” Park said, “Currently, the situation is influenced by external conditions and the domestic economy,” and added, “Until the impeachment decision is made, if there is a policy vacuum, there could be room for a slowdown in domestic growth rate, and the risks of U.S.-China policy are also open, which will significantly raise the peak of the won-dollar exchange rate.” Park estimated that the difference between the lowest and highest exchange rates could amount to 70-80 won.
An analyst from a securities firm, who requested anonymity, said, “In the short term, it seems we have to keep the exchange rate ceiling open,” adding, “Especially in the first half of next year, there seems to be a possibility that the exchange rate might shoot up in line with the launch of the Trump administration.” However, the analyst also mentioned, “The foreign exchange authorities are considering the exchange rate level to be excessive and are stepping up to defend it, which is why the exchange rate increase is expected to be limited for now.”