The won/dollar exchange rate reached its lowest level in about 10 months. Although it dipped below 1,410 won early in the session amid large-scale net purchases of domestic stocks by foreign investors, the decline was tempered as low-price buying and a weakening yen converged.
On the 18th, in Seoul's foreign exchange market, the won/dollar exchange rate closed at 1,411.8 won, down 1.2 won from the previous trading day, by 3:30 p.m. This marks the lowest level since October 2 last year (1,400.0 won).
The exchange rate opened at 1,417.0 won on this day before turning downward and falling as low as 1,408.0 won during trading. The reduced likelihood of additional base rate hikes by the Federal Reserve System (Fed) influenced the decline in the exchange rate.
The U.S. July consumer price index (CPI) and producer price index (PPI) met market expectations, followed by retail sales falling 0.6% from the previous month, significantly missing the market forecast of a 0.1% increase. Growing concerns over a slowdown in the U.S. economy bolstered expectations that the Federal Reserve would hold the base rate steady at next month's Federal Open Market Committee (FOMC) meeting.
Domestic supply and demand also drove down the exchange rate. Early in the session, dollar selling volumes emerged primarily through trust banks, while foreign investors net-purchased more than 1 trillion won in the KOSPI market at one point.
However, below 1,410 won, low-price dollar buying entered the market, including settlement demand from importers. As the dollar/yen exchange rate exceeded 159 yen and the yen showed weakness, and as the scale of foreign net purchases in the KOSPI market shrank significantly, the exchange rate rose back into the 1,410 won range.
Projections suggest that the won's strength may continue for some time. Park Sang-hyun, an economist at iM Securities, stated, "The won/dollar exchange rate will fluctuate around the 1,410 won level, but as foreign net purchases of domestic stocks persist, the trend toward re-entering the 1,300 won range is expected to strengthen."
However, U.S. long-term Treasury yields and the yen/dollar exchange rate remain variables. On the 17th (local time), the yield on the 30th-year U.S. Treasury bond rose to 5.304%, reaching its highest level in 19 years and two months. Increases in U.S. Treasury yields typically act as upward pressure on the won/dollar exchange rate.
Even if the likelihood of base rate hikes by the Federal Reserve diminishes, continued long-term yield increases due to fiscal deficits and Treasury supply burdens could cause the dollar's value to rebound, exerting upward pressure on the won/dollar exchange rate.
If the yen/dollar exchange rate breaks through 160 yen, it could further increase upward pressure on the won/dollar exchange rate. The possibility of rising international oil prices due to tensions in the Middle East also supports the lower bound of the exchange rate.
Meanwhile, the KOSPI closed down 108.11 points (1.55%) at 6,869.83 from the previous trading day. Foreign investors net-purchased approximately 86 billion won, maintaining a buying advantage for five consecutive trading days, though the net purchase volume, which had exceeded 1 trillion won in the morning, shrank significantly.
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