‘King dollar’ fear returns after U.S inflation figure

As concerns that the U.S. Federal Reserve System (Fed) will implement long-term austerity measures to lower inflation in the country, the fear of the ‘king dollar’ is returning. The won-dollar exchange rate rose 18 won from the previous trading date and exceeded 1,320 won per dollar.

The won-dollar exchange rate closed at 1,323.0 won per dollar on Monday in the Seoul foreign exchange market, 18.2 won higher than the previous trading date. This was the first time since December 7 that the exchange rate exceeded 1,320 won per dollar. The exchange rate rose to 1,323.5 won per dollar during trading hours on Monday.

What grew anxiety about the exchange rate was inflation metrics in the U.S. The personal consumption expenditures (PCE) price index rose 5.4 percent in January compared to last year, according to the announcement on Friday (local time). Its increase rate reached a 40-year-high of seven percent in June last year and rose again in seven months. The Fed is more likely to tighten its austerity stance because the U.S. inflation metrics are above market expectations. Some in the market said the final interest rate of the U.S. will exceed 5.25 to 5.50 percent. While the Bank of Korea froze its base rate at 3.50 percent on Thursday, the gap between the two countries’ base rates can further widen.

The KOSPI closed at 2,402.64 points on Monday, 0.87 percent lower than the previous trading date. The stock exchange, which opened the day with 2,405.42 points, fell from the beginning and dropped to 2,383.76 points at one point during trading hours. It was the first time the KOSPI fell below the 2,400 mark since January 20.

With the won depreciating, there are concerns that foreign investment will leave South Korea. In the KOSPI market, individual traders net-purchased 675.5 billion won while foreign investors net-sold 324.8 billion won on Monday, dragging down the KOSPI index.


abro@donga.com