Tariff Threats and Korean Interest Rate Cut... KRW-USD Exchange Rate Rises Above 1450 Won for the First Time in Two Weeks

KRW-USD exchange rate fluctuates in the 1452 won range

Safe-haven asset demand increases amid tariff war

Korea-US interest rate gap widens following Bank of Korea's rate cut

The KRW-USD exchange rate has risen above 1450 won for the first time in two weeks due to Trump's tariff threats and the Bank of Korea's base rate cut.

As of 10 AM on the 28th, the Korean won was trading at 1452.9 won against the US dollar in the Seoul foreign exchange market, up 9.9 won from the previous weekly closing price. The KRW-USD exchange rate opened at 1451.0 won, up 8.0 won, reflecting the recent dollar strength.

The dollar index, which measures the value of the US dollar against six major currencies, stands at 107.249, up 0.54% from the previous day.

This is attributed to increased demand for the US dollar, considered a safe-haven asset in global financial markets, as US President Donald Trump continues to escalate his rhetoric on tariffs.

On the 27th (local time), Trump wrote on his social media platform Truth Social, "Illegal drugs from Mexico and Canada are flowing into the United States at unacceptable levels, and we cannot allow this disaster to continue harming our country," adding that "the tariffs scheduled to take effect on March 4 will indeed take effect as planned until (illegal drugs) are stopped or restricted."

He also emphasized, "China will also be subject to an additional 10% tariff on that date," and "the mutual tariff date (announced) for April 2 also remains in full effect."

Earlier this month, Trump postponed tariffs on Canada and Mexico while imposing an additional 10% tariff on Chinese goods, which had already been subject to an average 20% tariff. Now he has announced plans to add another 10% tariff.

In response to the US tariff increase, China already implemented retaliatory tariff measures on the 10th, imposing 15% tariffs on US coal and liquefied natural gas, and additional 10% tariffs on crude oil and agricultural machinery.

The Bank of Korea's Monetary Policy Committee's decision to implement monetary easing again to stimulate domestic demand also contributed to the exchange rate increase.

On the 25th, the Monetary Policy Committee lowered the base rate by 0.25 percentage points from 3.00% to 2.75% per annum at this year's second monetary policy meeting, as the market had expected.

The committee attempted monetary easing for the first time in three years when it lowered the base rate by 0.25 percentage points last October, and implemented an additional unexpected cut last November.

This consecutive rate reduction by the committee is the first since the six consecutive cuts during the financial crisis (October 2008-February 2009), indicating clear signs of economic downturn.

However, concerns have emerged in the market that the widening interest rate gap with the United States could lead to foreign capital outflows.

Min Kyung-won, a researcher at Woori Bank, said, "As Trump once again raises pressure on tariff increases, foreign investors continue to withdraw from the domestic stock market, creating a weak won atmosphere," adding, "Supply-demand factors such as settlement needs and securities firms' dollar purchases for overseas stock investment funds are also direct factors driving the exchange rate increase."

Roh Jung-dong, reporter for Hankyung.com dong2@hankyung.com