Won-dollar exchange rate becomes more volatile due to external factors

An employee works in the dealing room of Hana Bank in central Seoul. Yonhap News Agency

Recently, the won-dollar exchange rate has been on a “roller coaster.” It has been falling in response to the release of data that determines the direction of the U.S. benchmark interest rate and rising in response to foreign selling in the domestic stock market.

The volatility is expected to increase further due to external variables, such as interest rate cuts by the European Central Bank (ECB) on June 6.

In the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,376.0 won per dollar on June 4, down 0.1 won from the previous day.

Recent exchange rate trends show a lot of volatility. The exchange rate, which has risen since the beginning of the year, hit a record high of 1394.5 won on April 16. Since then, it has been on the decline due to authorities' intervention, but it has risen again since May 17 and surged to 1,384.5 won on the 31st. It has risen about 1.1 percent for a week since May 27.

Such fluctuations in the exchange rate are explained by foreigners' net selling of Korean stocks, along with the impact of U.S. indicators. The exchange rate declined as expectations for a rate cut increased following the announcement that U.S. economic indicators would slow down, but at the same time, foreigners' selling of Korean stocks has increased, leading to the exchange rate fluctuating again.

The exchange rate fell to 1369.1 won at one point in the morning as the U.S. Manufacturing Purchasing Managers' Index (PMI) for May, announced the previous day, fell to 48.7, which was below market expectations (49.8). However, the decline in the exchange rate gradually decreased as foreign selling increased in the securities market. On the same day, foreigners sold a net 210 billion won worth of stocks in the KOSPI market.

Last week was no different. Expectations for a rate cut grew as the U.S. GDP growth rate in the first quarter was revised to 1.3 percent, lower than the advance estimate (1.6 percent), but the exchange rate rose for the third consecutive day as foreigners sold about 3 trillion won in Korean stocks for a week. Park Sang-hyun, a researcher at Hi Investment & Securities, said, "The momentum of the export economy has recovered, but it is not reflected in the exchange rate much," adding, "The relationship between daily average exports and the won-dollar exchange rate, which has been highly correlated, has weakened significantly." This means that the exchange rate has become more volatile due to external factors, such as US monetary policy, than internal factors.

※This article has undergone review by a professional translator after being translated by an AI translation tool.