Relief as tariff talks conclude… won·dollar exchange rate falls to the 1,420-won range

"To fall below 1,420 won, supply and demand must improve"

Authorities: "Activate joint monitoring system"

During trading on the 30th, the won·dollar exchange rate fell to the 1,420-won range. This is interpreted as the effect of uncertainty being resolved after South Korea and the United States reached agreement in tariff talks. The two countries agreed to limit the annual cap on investment to the U.S. to 20 billion dollars.

That day the won·dollar rate opened at 1,425 won, down 6 won 78 jeon from the previous session. As of 9:24 the rate stood at 1,422 won 30 jeon. In the previous night session, the rate at one point dipped below 1,420 won.

With uncertainty over the tariff talks resolved, a sense of relief appears to have spread in the foreign exchange market. Kim Yong-beom, director of the Presidential Office policy office, disclosed details of U.S.-bound financial investments of 350 billion dollars (about 497.385 trillion won) at a briefing the previous day.

Mr. Kim explained, "The 350 billion dollars consists of 200 billion dollars in cash investments and 150 billion dollars in shipbuilding cooperation," and added, "The important point is that an annual investment cap of 20 billion dollars has been set."

He went on to say, "The 200 billion dollar investment will not be made all at once but will be invested within an annual limit of 20 billion dollars (about 28.5 trillion won) according to project progress, so it is within a range our foreign exchange market can absorb and can minimize the impact on the foreign exchange market." The annual 20 billion dollars is the authorities' stated red line for not burdening the foreign exchange market.

Wi Jae-hyeon, an economist at NH Futures, forecast that the exchange rate would move in the 1,421–1,429 won range that day. The economist explained, "As methods to raise the 20 billion dollars, issuing government-guaranteed overseas bonds and using returns from government agencies' foreign currency asset management were proposed," adding, "This is sufficiently positive for the domestic foreign exchange market, similar to a currency swap, because it does not directly procure through the spot foreign exchange market. If the U.S.-China summit proceeds positively, the exchange rate could fall further."

However, the rebound in the dollar after the October Federal Open Market Committee (FOMC) meeting is a variable. The U.S. benchmark interest rate has come down from 4∼4.25% to 3.75∼4%, but concerns have grown that the rate-cutting trend may stop. Federal Reserve Chair Jerome Powell said on the 29th (local time) that "it is not a given that the benchmark rate will be further cut at the December meeting."

The economist said, "It appears the exchange rate rose to the 1,440-won range due to domestic overseas investment exceeding the scale of foreign investment in the KOSPI," and noted, "To bring the exchange rate below 1,400 won, the supply-demand imbalance must be resolved."

The government has decided to strengthen the monitoring system for the financial·foreign exchange markets. Lee Hyung-in, First Vice Minister of the Ministry of Economy and Finance, held a joint macroeconomic and financial meeting with relevant agencies that day and said, "While some stabilization is being observed as uncertainty has eased with the conclusion of the Korea·U.S. tariff negotiations, external uncertainties such as U.S.-China trade tensions and a prolonged U.S. federal government shutdown remain," adding, "We will continue to operate a 24-hour joint monitoring system for the financial·foreign exchange markets."

Jin Young-gi, Hankyung.com reporter young71@hankyung.com