2024-04-16 21:52:32
Aftereffects of the weakening dollar amid rising tensions in the Middle East
KOSPI -2.28%…亞stock market plunges
Amid heightened tensions in the Middle East, U.S. economic indicators exceeded market expectations and the won-dollar exchange rate touched the psychological Maginot line of 1,400 won. As the exchange rate soared day after day, the foreign exchange authorities immediately intervened verbally to stabilize the market.
On the 16th, the won-dollar exchange rate in the Seoul foreign exchange market closed at 1394.5 won, up 10.5 won from the previous trading day. At one point during the day, it rose to 1,400.0 won. This is the first time since November 7, 2022 (1,414.5 won) that the exchange rate has risen to the 1,400 won range intraday.
On this day, foreign exchange authorities such as the Ministry of Strategy and Finance and the Bank of Korea issued an emergency notice, saying, “The foreign exchange authorities are closely watching exchange rate movements, foreign exchange supply and demand, etc. with a sense of vigilance,” and added, “Excessive concentration in the foreign exchange market is not desirable for our economy.” revealed. This is the first time in 22 months that the two organizations have jointly initiated verbal intervention.
Recently, the strong dollar phenomenon has become more noticeable, and the exchange rate is increasing its highs every day. This is because the dollar, a safe asset, is showing strength as war clouds hang over the Middle East while the U.S. Federal Reserve’s (Fed) rate cut is delayed.
As the U.S. retail sales index for March announced last night increased by 0.7% compared to the previous month, exceeding market expectations (0.4%), expectations about the Federal Reserve’s interest rate cut were further dampened. Accordingly, major Asian stock markets, including KOSPI (-2.28%), Japan’s Nikkei Stock Average (-1.94%), and Taiwan’s Chiquan Index (-2.68%), all plummeted by around 2%.
The exchange rate touched 1,400 won for the fourth time in history… Companies with ‘foreign currency debt of 226 trillion’ take emergency
“Strong dollar until the end of the year… “You can go for 1,450 won.”
Concerns about worsening performance due to corporate interest burden
Overseas expatriates and international students also face increased burden
Yen ‘154 yen per dollar’, highest in 34 years
“If the exchange rate rises this quickly, we have no choice but to suffer the double whammy of rising costs and falling sales.” Mr. Cho (54), CEO of a food import company, is suffering from the recent rise in the won-dollar exchange rate. If the exchange rate rises slowly, there is room to reflect the increase in the exchange rate in the sales price, but when the exchange rate rises, the domestic economy is usually down, so the price cannot be raised considering sales. Mr. Cho said, “We suffered losses at the end of 2022 as the exchange rate soared, and it seems difficult to avoid a decline in performance this year as well.”
The exchange rate is rising by nearly 10 won every day as expectations for an early cut in the benchmark interest rate by the U.S. Federal Reserve have been greatly diminished, and war clouds are looming in the Middle East due to the armed conflict between Israel and Iran. As the foreign currency debt of domestic companies has increased to an all-time high, uncertainty in performance is growing as volatility in the foreign exchange market increases.
● When the exchange rate is set at 1,400 won, companies are on high alert.
According to the Bank of Korea’s international investment table on the 16th, Korea’s external debt of non-financial companies (corporates) at the end of last year was calculated to be $162.612 billion (about 226.6811 trillion won), the highest ever. It increased by $8.5838 billion compared to the end of 2022 ($154.0282 billion). The reason why domestic companies’ foreign currency-related debt has increased is because overseas investment has increased and they have taken out a lot of dollar debt in anticipation of a weakening dollar this year. However, contrary to expectations, it is expected that the performance of companies will inevitably deteriorate due to increased interest costs as the exchange rate soars due to prolonged high interest rates. Looking at the size of foreign currency debt by company at the end of last year, it was found that SK Hynix (KRW 29.7348 trillion), LG Energy Solution (KRW 8.6942 trillion), and Asiana Airlines (KRW 5.2903 trillion) owed trillions in debt. .
Kim Chan-hee, a researcher at Shinhan Investment & Securities, said, “The exchange rate is a problem, but the rise in international oil prices is also a huge burden for domestic companies,” and added, “If the pressure to increase prices increases, the pain of domestic companies will become more severe.”
Overseas expatriates and international students are also crying due to the rising exchange rate. Mr. Hwang (33), who has been working in California for three years, said, “As local prices continue to rise and the exchange rate soars, international students and office workers have drastically reduced their consumption.” He added, “As no one eats out, Korean restaurants are empty, and high oil prices are affecting the economy.” “I try not to drive well,” he said.
● Strong dollar until the end of the year… Forecast for exchange rate of 1,450 won
Experts predicted that the dollar’s strong trend will continue until the second half of this year (July to December). There is also analysis that it may exceed the previous high point (1,439.9 won) recorded on September 28, 2022. This is the fourth time that the exchange rate has risen to the 1,400 won range since the 1997 foreign exchange crisis, the 2008 global financial crisis, and 2022, when the United States began intense austerity measures. Lee Hyo-seop, a researcher at the Capital Market Research Institute, predicted, “Even if the foreign exchange authorities intervene, the exchange rate is expected to rise to 1,450 won,” and added, “The strong dollar phenomenon will continue until the U.S. base interest rate is lowered.”
The Japanese economy is also being hit by the strong dollar. On this day, the yen-dollar exchange rate was traded at 154.28 yen per dollar in the Tokyo foreign exchange market, soaring to the highest level since June 1990. Japanese Finance Minister Shunichi Suzuki made a verbal intervention, saying, “We will keep an eye on the situation and take every possible response,” but it did not prevent the yen from weakening.
As volatility in the domestic foreign exchange and financial markets increased, the Ministry of Strategy and Finance held a joint emergency review meeting with relevant ministries related to the Middle East situation at the Seoul Government Complex in Jongno-gu, Seoul on this day and said, “If the market shows excessive volatility due to a deviation from our economic fundamentals, we will take action immediately and boldly.” “We will take action,” he said.
Reporter Lee Dong-hoon [email protected]
Reporter Kim Soo-yeon [email protected]
Tokyo = Correspondent Lee Sang-hoon [email protected]
2024-04-16 21:52:32