On Wednesday, the Korean won fell to its lowest level in over 15 years, mainly due to the Federal Reserve's hawkish monetary policy and political uncertainty within South Korea. The USD/KRW exchange rate rose by 1.5% at one point, reaching 1,460.20, the highest since March 2009. Strong demand for the US dollar and increased risk aversion towards the won exerted significant pressure on South Korea's foreign exchange market.
Federal Reserve's Hawkish Stance Pressures the Won
Recently, the Federal Reserve's firm stance has continued to push up the dollar index. As the Fed signals a possible decrease in the magnitude of future rate cuts, global capital flows into dollar assets have intensified. This trend places pressure on emerging market currencies like the Korean won, significantly widening its depreciation.
Domestic Political Uncertainty Impacts Market Sentiment
In addition to external pressures, domestic political uncertainty in South Korea has also dampened market sentiment. Investor uncertainty about policy directions has increased the selling pressure on the won, further dragging down its exchange rate.
Government's Urgent Response Measures
In response to market volatility, South Korea's Finance Minister Choi Sang-mok stated at a meeting that the government and the central bank will closely monitor financial and foreign exchange markets and swiftly implement additional measures if necessary to stabilize markets and prevent further volatility. Nonetheless, the market remains cautious about the short-term outlook of the won.
Market Outlook
Experts indicate that the downward trend of the won may persist unless there is a marked shift in the Federal Reserve's policy stance or greater clarity in South Korea's political landscape. Investors need to closely follow global monetary policy dynamics and whether the South Korean government will introduce further stabilization measures to address high foreign exchange market volatility.
