The won-dollar exchange rate closed at 1,451.9 won. This is the highest level since March 2009, when the financial crisis was at its peak, based on the closing price. This was due to the strengthening of the dollar as the Federal Reserve (Fed) suggested a moderation in the pace of interest rate cuts.
According to the Seoul Foreign Exchange Market on the 19th, the exchange rate closed at 1,451.9 won, up 16.4 won from the previous trading day's weekly transaction closing price (as of 3:30 p.m.) of 1,435.50 won. The exchange rate surpassed 1,450 won for the first time in 15 years and 9 months since March 2009, when the global financial crisis occurred, based on the closing price.
The exchange rate on this day opened at 1,453.0 won, reflecting the offshore exchange rate, up 17.5 won from the previous transaction closing price. In the early session, the exchange rate maintained at the early 1,450 won level, then fell to the late 1,440 won range around 10 a.m. After staying in the 1,440 won range, it rose again to the 1,450 won level around 3 p.m.
The rise in the exchange rate is attributed to the Fed implementing a 'hawkish (tightening preference) interest rate cut' at this year's last Federal Open Market Committee (FOMC) meeting. Although the benchmark interest rate was further reduced by 25 basis points (bp) (1bp = 0.01 percentage point), the Fed significantly lowered next year's interest rate cut range from the previous 100 bp to around 50 bp.
The weakness of the yen, which has high correlation with the won, also had an impact. The Bank of Japan (BOJ) held a monetary policy decision meeting on the 18th and 19th and announced it would maintain the short-term policy interest rate at the current annual rate of 0.25%. As a result, the dollar-yen exchange rate rose to 156.31 yen, exceeding 156 yen for the first time since Oct. 15.
According to Investing.com, the dollar index was recorded at 108.04 as of 4:28 p.m. Although it was in the range of 106 until the 17th, it rose sharply reflecting the results of the FOMC. The dollar index exceeded the 108 line for the first time since Nov. 2022, when the Fed was raising interest rates significantly.
In the domestic stock market, foreigners' selling of stocks spurred the rise in the exchange rate. Foreign investors sold stocks worth about 390 billion won in the KOSPI market and about 19 billion won in the KOSDAQ market. As foreign selling pressure intensified, the KOSPI index closed at 2,435.93, down 48.80 points (1.95%) from the previous transaction day.
In response to the situation, the foreign exchange authorities continued market stabilization measures. The Bank of Korea and the Ministry of Strategy and Finance decided to extend the foreign exchange swap transaction with the National Pension Service (NPS), which was set to expire at the end of this month, until the end of next year, and to increase the limit from the previous $50 billion to $65 billion. In addition, the NPS decided to extend the period for increasing the overseas investment hedge ratio by up to 10% until next year.
Park Sang-hyun, a researcher at IM Investment & Securities, noted, "The sharp rise in the exchange rate is partly due to political risks in our country but mainly influenced by the strong U.S. dollar." Park stated, "The Fed's decision to reduce the number of interest rate cuts and adjust the inflation outlook upward emphasized inflation risks, causing U.S. Government Bonds rates to rise sharply, leading to a decline in the won's value."