Although the US first quarter gross domestic product (GDP) growth rate (1.6%) announced on the 25th (local time) was significantly lower than the market forecast (2.4%), the dollar won exchange rate was trading at strong level on the 26th. The KOSDAQ index and the closing price of the winning-dollar exchange rate on this day are displayed on the electronic display board in the dealing room of Hana Bank’s main branch in Jung-gu, Seoul. / Reporter Kim Beom-jun The won-dollar exchange rate closed at 1,288 won at the end of last year, with 1,300 won and 40 won on January 2, the first opening day of this year. The exchange rate in the 1,300 won range, which started at the beginning of the year, will continue until the end of March, leading to an assessment that ‘1 dollar = 1,300 won range’ has become the new normal. This month, US employment, prices and consumption all beat expectations, dampening expectations of a US interest rate cut and worsening the crisis in the Middle East, making the rise even steeper. On the 16th, it was more than 1,400 gained during the day for the fourth time in history. According to the financial world on the 26th, the average win-dollar exchange rate rose to 1,320, 74 won in the fourth quarter of last year, rose to 1,329 won 40 in the first quarter of this year and 1,368 won 17 won this month (of the 1st to 26th).
○ “Rising in the second quarter”… Only two hits
View larger image The trend of the exchange rate this year was much higher than the expectations of most domestic and foreign financial companies made at the end of last year. Most financial firms expected the exchange rate to remain in the low range of 1,300 won in the first quarter of this year and then fall to the range of 1,200 won in the second quarter. It was a prediction based on the assumption that the US Central Bank (Fed) would cut interest rates as much as six times by the end of the year, starting as early as March this year. Domestic financial companies such as Korea Investment, Meritz Securities, Hana, Shinhan Bank, and NH Futures predicted that the exchange rate would hit 1,290-1,350 won in the first quarter of this year and then fall to 1,270-1,300 won in the second quarter. Foreign investment banks (IBs) such as Goldman Sachs, Morgan Stanley, and Nomura were similar.
Two financial companies are attracting attention by predicting different forecasts and predicting the trend of the exchange rate until this month. NH Investment and Securities and Woori Bank. In a report presented in November last year, NH Investment & Securities predicted that the exchange rate in the first quarter of this year would average 1,320 won and then rise further to 1,360 won in the second quarter. It is close to the average exchange rate from the 1st to the 26th of this month (1,368 won and 17 won). Woori Bank also predicted that the upward trend will continue from 1,350 won in the first quarter of this year to 1,360 won in the second quarter.
The reason why both companies were able to provide relatively accurate forecasts is that they evaluated the fundamentals of the US economy more important than the possibility of an interest rate cut. Kwon A-min, an economist at NH Investment & Securities, said, “We believe that the United States will strongly regain its status as a hegemony through technological development and investment in growth industries. but given the interest rate differential with developed countries and other prices, this is not enough.” “We don’t expect the dollar to weaken,” he said. Min Kyung-won, an economist at Woori Bank, has strongly suggested an interest rate cut in September as expectations for a US interest rate cut are high. This is because expectations of an early interest rate cut are deemed excessive.
○ Uncertainty is high… “Hard to predict”
Of course, the reason why it was difficult to predict the exchange rate this year was due to unexpected global variables. The escalating crisis between Israel and Iran was a difficult factor to predict at the end of last year. A researcher in charge of exchange rates at a securities firm said, “There are too many variables that affect the exchange rate,” and “it’s quite difficult to predict.”
Some predict that because only the first month of the second quarter has passed, the ‘predicted report card’ could change by the end of June. For example, on the 25th, if it is reflected that Korea’s first quarter gross domestic product (GDP) was a surprise, while US first quarter GDP was slower than expected, raising doubts about the strong US economy, etc. are reflected, the value of the gain may rise and the exchange rate may fall.
In the third quarter, one of NH Investment & Securities and Woori Bank is expected to have an incorrect prediction. NH Investment & Securities predicts that the average exchange rate in the third quarter will rise further to 1,370 won, while Woori Bank predicts it will fall to 1,330 won.
Reporter Kang Jin-gyu josep@hankyung.com
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