Exchange rate and bonds: possibility of won–dollar in the 1,430-won 'box' range

Last week the won–dollar exchange rate traded in a box range between 1,420 and 1,430 won, and in overnight trading on the 31st of last month it closed at 1,433 won, down 6 won 40 jeon from the previous week.

The won–dollar exchange rate climbed above the 1,400-won level on September 24 amid concerns that Korea–U.S. tariff negotiations would be prolonged. Combined with yen weakness, it briefly rose to 1,441 won 50 jeon during trading on the 23rd of last month, marking a six-month high. The exchange rate fell somewhat after Korea–U.S. tariff negotiations were concluded during last week's Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju, but it still hovers around the 1,400-won level.

The U.S. central bank (Fed) cut its policy rate by 0.25 percentage points on the 29th of last month, which was seen as sending a hawkish (preference for monetary tightening) signal. Fed Chair Jerome Powell said at the press conference, "A rate cut in December is not certain," dampening the market's expectations for further cuts. The Dollar Index closed at 99.630 on the 31st of last month, up 0.9% from the previous week.

The tariff deal, which concretized a plan to invest up to $20 billion annually in the U.S. over the next 10 years, is also expected to act as a factor weakening the won. Lee Jin-kyung, a researcher at Shinhan Investment Corp., said, "The tariff negotiation result is positive, but concerns about capital outflows have increased pressure on the won's weakness," adding, "For the time being, the exchange rate is highly likely to fluctuate around 1,430 won."

The domestic bond market was on the rise last week. In the Seoul bond market on the 31st of last month, the yield on 3-year government bonds closed at 2.716% per annum, up 0.125 percentage points from the previous week (2.591% per annum). This is interpreted as reflecting the possibility that the Bank of Korea's timing for a rate cut may be delayed compared to expectations.

Kim Ik-hwan, reporter lovepen@hankyung.com