AsiaToday reporter Yoon Soo-hyun
The won-dollar exchange rate exceeded the 1,340 mark for the first time in 13 years. This is a result of the strengthening of the dollar and the U.S’s tightened monetary policy due to global inflation.
The local currency traded at 1340.2 won against the dollar at around 1:50 p.m. on Monday, up 14.3 won from the closing price of the previous session. It is the first time in 13 years and four months that the won hit 1,340 level against the dollar, after it hit 1,357.5 won to the dollar on April 29, 2009.
As the strong dollar continues, the won-dollar exchange rate continues to rise. Analysts say that the dollar will continue to strengthen as the U.S. Federal Reserve’s officials are delivering hawkish remarks.
The minutes of the Fed’s July policy meeting released last week showed the U.S. central bank is likely to continue its aggressive monetary tightening to put a lid on inflation.
St. Louis Fed president James Bullard backed the idea of 75 basis-point rate hike last Thursday, saying that inflation is very high and it is reasonable to raise the policy rate.
There is a forecast that the dollar will strengthen as the market becomes wary ahead of Jackson Hole scheduled for Friday.
Experts attribute the rise in the won-dollar exchange rate to a combination of various factors, including the pressure to slow demand following the Fed’s tightening, the months-long energy crisis across Europe, and the deterioration of the Chinese economy.
A stronger dollar means a depreciating won. If the won depreciates, the effect of lowering international raw material prices will inevitably decrease. As a result, inflationary pressure in the domestic economy, which is highly dependent on imports, is expected to rise.
Amid the sharp rise in inflation and pressure to raise the base rate, the Monetary Policy Committee of the Bank of Korea is likely to raise the base rate on Thursday. There are also concerns that a rise in t the exchange rate and interest rates will lead to a contraction in corporate investment and consumption.