Is the era of a weak dollar coming... KRW-USD exchange rate falls to the 1,350 won range

With the dollar weakening, the KRW-USD exchange rate fell to the 1,350 won level (the value of the Korean won rose). The International Financial Center held its second half outlook seminar that day and forecasted that the weak dollar trend will continue for the time being, citing the weakening of “U.S. exceptionalism.”

On the 26th at the Seoul foreign exchange market, the won-dollar exchange rate (as of 3:30 p.m.) closed at 1,356.90 won, down 5.50 won from the previous day. The exchange rate opened at 1,358.00 won, down 4.40 won from the previous day, then widened its decline.

The fall in the exchange rate was led by the dollar’s weakness. The dollar index, which shows the value of the dollar against the currencies of six major countries, recorded 97.440, down 0.25% from the previous day. During the trading session, it dropped to 97.270, marking the lowest since March 2, 2022 (97.261), in about 3 years and 3 months.

The dollar’s weakness is due to expectations of U.S. policy rate cuts. Jerome Powell, the Federal Reserve Chair, stated at the Senate hearing that it is difficult to estimate the impact of reciprocal tariffs on inflation. This followed his response the previous day at the House that if inflationary pressures continued to be subdued, the Fed could cut rates earlier. Although Powell’s remarks were rather general, the market interpreted them as somewhat dovish (in favor of monetary easing).

Donald Trump, who has been pressuring for rate cuts, sparked a reaction by mentioning that he is considering three to four candidates to succeed Powell as Fed Chair. Minhyuk Lee, a research analyst at KB Kookmin Bank, analyzed, “The weakness of the dollar driven by rate cut expectations from the Fed is acting as downward pressure on the exchange rate.”

At the same time, the won-yen cross rate traded at 938.28 won per 100 yen. This was down 30 jeon from the previous day’s 3:30 p.m. reference price (938.58 won). The yen-dollar exchange rate dropped by 0.84 yen to 144.35 yen.

On this day, the International Financial Center held the second half global financial market outlook seminar and anticipated that dollar weakness would continue. The Center stated, “In the second half of this year, weak dollar conditions will be maintained due to the weakening of U.S. exceptionalism and the global trend toward de-dollarization,” adding, “With long-term leading indicators showing signs of weakness and the prolonged uncertainty of the trading environment, the vitality of the U.S. economy will inevitably shrink, and a moderate dollar index decline will be observed.”

Reporter Jinkyu Kang josep@hankyung.com