Won Hits 1,387.3 as Fed Hikes Rates and Oil Tops $100
The Korean won slid to 1,387.3 per dollar after the Fed raised rates. High oil prices and reduced dollar supply drive the decline.
Key points
- The won slid to 1,387.3 per dollar, marking seven consecutive trading days of gains.
- The Fed raised rates to 3.75-4.0% and signaled further hikes, boosting the U.S. Dollar Index above 100.
- Oil prices above 100 dollars per barrel increase import costs, but semiconductor exports provide some support.
The South Korean won closed the trading session at 1,387.3 against the U.S. dollar. This marks a seven-day streak of gains that pushes the currency closer to the 1,400 level.
The Federal Reserve’s decision to hike rates by 0.25 percentage points to 3.75-4.0% triggered the move. Rising oil prices above 100 dollars per barrel further intensified pressure on the won.
Fed Tightening Drives Dollar Strength
The U.S. Dollar Index surpassed 100, its highest point in seven weeks. Fed Chair Kevin Warsh indicated that current rates may be insufficient to curb consumption and investment.
Speculation now points to three or more additional rate hikes by next summer. This outlook enhances the appeal of dollar assets while exerting downward pressure on the won.
Oil Prices Strain Trade Balance
South Korean firms require more dollars to import energy as oil exceeds 100 dollars per barrel. High energy costs also amplify inflationary risks in the U.S. economy.
A persistent trade deficit from energy imports threatens the currency’s value. The combination of high import costs and strong dollar demand creates a dual pressure point.
Export Earnings Limit Currency Decline
Dollar supply in the domestic market has shrunk due to completed ADR inflows. The National Pension Service also suspended strategic currency hedging activities recently.
However, steady dollar inflows from semiconductor exporters are expected to cap further gains in the exchange rate. Large current account surplists partially offset the outflows caused by high oil prices.
