The USD-KRW exchange rate posted its steepest monthly decline in 44 months through the previous day, falling 5.61% this month, according to the Bank of Korea Economic Statistics System on July 29. The rate dropped from 1,549.40 won at the end of last month to 1,462.50 won, driven by improved supply-demand conditions including SK Hynix American Depositary Receipt (ADR) conversion funds and dollar sales from export companies through spot and forward currency transactions. Market participants are now focused on the Federal Reserve's Federal Open Market Committee (FOMC) meeting scheduled for July 29 (local time) to determine the exchange rate's future direction. The last comparable monthly decline occurred in November 2022, when the rate fell 7.41%.
USD-KRW Posts Largest Monthly Decline Since November 2022
The exchange rate showed stability in January and February this year before surging 6.28% in March due to large-scale foreign stock selling. The rate then fell 3.06% in April, followed by increases of 1.66% in May and 2.75% in June.
SK Hynix ADR conversion funds and export companies' spot and forward currency dollar sales drove the recent decline. The monthly decline of 5.61% through the previous day represents the largest drop since November 2022's 7.41% fall.
All 15 Surveyed Institutions Expect Fed Rate Hold at July FOMC
Yonhap Infomax surveyed 15 domestic and international institutions regarding the upcoming FOMC meeting, and all respondents forecast the Fed will hold rates steady. Market participants are monitoring Chairman Kevin Warsh and committee members' stance on monetary tightening.
Yong-gu Cho, researcher at Shinhan Investment & Securities, forecast a rate hold at this week's FOMC, stating "we are paying attention to the possibility of hawkish views spreading among some board members and regional Federal Reserve Bank presidents, as well as Chairman Warsh's situation assessment."
Mitsubishi UFJ Bank stated that "while the slowdown in June inflation indicators appears to give the Fed some breathing room, if Chairman Warsh seeks to strengthen the Fed's credibility in responding to inflation amid high oil prices and persistent inflation overshoot, the possibility of a rate hike cannot be completely ruled out." The bank added that "even if rates are held as expected, dissenting votes supporting an increase are likely to emerge among committee members."
Analysts Highlight Hawkish Risk from Warsh-Led Fed
The first FOMC meeting chaired by Chairman Warsh on June 17 (local time) was interpreted as hawkish, pushing the dollar higher. The dollar index, which reflects the dollar's value against six major currencies, rose 0.83% on the June FOMC day alone, crossing the 100 mark and currently fluctuating in the 101 range.
Young-hwa Lee, economist at BNK Busan Bank, analyzed that "if inflation vigilance is highlighted in the (FOMC) press conference, it could stimulate dollar strength." If the Fed surprises with a rate hike, USD-KRW could surge sharply, potentially resolving the recent divergence from the dollar index that has been prominent this month.
FAQ
What caused the USD-KRW exchange rate to fall 5.61% this month?
The decline was driven by improved supply-demand conditions, including SK Hynix American Depositary Receipt (ADR) conversion funds and dollar sales from export companies through spot and forward currency transactions. The rate dropped from 1,549.40 won at the end of last month to 1,462.50 won through the previous day.
What are market expectations for the Fed's July 29 FOMC meeting?
All 15 institutions surveyed by Yonhap Infomax expect the Federal Reserve to hold rates steady at the July 29 (local time) FOMC meeting. However, analysts are closely watching Chairman Kevin Warsh and committee members' stance on monetary tightening, with some noting the possibility of dissenting hawkish votes even if rates are held.
