KRW-USD exchange rate falls to 1,420 won level for first time in two and a half months... Bank of Korea gains breathing room for rate cut

On the day before the Bank of Korea's key interest rate decision, the KRW-USD exchange rate fell to the 1,420 won level. As the dollar weakened, the exchange rate dropped to its lowest level in two and a half months. Analysts say this gives the BOK more flexibility for a potential rate cut.

On the 24th, the KRW-USD exchange rate (as of 3:30 PM) in the Seoul foreign exchange market closed weekly trading at 1,427.40 won, down 6.90 won from the previous trading day. This is the first time the exchange rate has entered the 1,420 won range since December 10th last year (1,426.90 won).

The exchange rate started at 1,437 won, up 2.70 won, reflecting risk-averse sentiment, but soon reversed to a decline. It fell as low as 1,424 won in the afternoon.

As the euro and yen strengthened, the dollar showed relative weakness. The Dollar Index, which measures the dollar's value against six major currencies, recorded 106.282, down 0.23% from the previous trading day.

The euro gained strength as the center-right CDU/CSU alliance won the German federal parliamentary election. The Japanese yen also appreciated on the possibility of additional policy rate hikes by the Bank of Japan (BOJ).

The yen-dollar exchange rate fell to 148.850 yen, its lowest since December last year, before closing weekly trading at 149.423 yen, down 0.71% from the previous trading day.

As the exchange rate declined, expectations for a BOK rate cut increased. The BOK will hold its Monetary Policy Committee meeting on the 25th to decide whether to adjust the current base rate of 3.00%. The market largely expects the committee to cut the base rate, as economic weakness needs to be addressed while the exchange rate has found some stability. According to a Hankyung Economist Club survey, 89.5% of respondents predicted a base rate cut.

As of 3:30 PM, the won-yen cross rate was 955.23 won per 100 yen, up 2.24 won from the previous trading day's reference rate of 952.99 won at 3:30 PM.

Reporter Jinkyu Kang josep@hankyung.com