‘Exchange rate of 1,400 won’ break the government
The foreign exchange authorities intervened in the market… Estimated sales of 700 million yen
Choo Kyung-ho “I can’t sit still”… 6 won ‘tuk’ after intervention
On the 15th, when the foreign exchange authorities threatened the won-dollar exchange rate of 1,400 won, they officially intervened. At the same time, it is known that he engaged in ‘dollar selling’ worth 700 million dollars in the foreign exchange market. Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho said, “We cannot sit still.” In the meantime, the government, which seemed to ignore the sharp rise in the exchange rate, defended the exchange rate in many ways.
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On that day, the won-dollar exchange rate at the Seoul Foreign Exchange Market rose 10 days ago to 1,391 won and jumped to 1,397 won and 90 after 1 pm. When the exchange rate exceeded 1,400 won per dollar, a foreign exchange official said, “We are closely monitoring the possibility of concentration in the market while the volatility of the won is increasing due to recent external factors.” This is the first official verbal intervention by the foreign exchange authorities in about three weeks since the 23rd of last month, when the exchange rate threatened 1,350 won per dollar. This is the fifth time this year.
After that, the exchange rate fell to 1391 won per dollar in less than 40 minutes. The exchange rate plunged by more than 6 won due to the intervention of the foreign exchange authorities. During this process, USD 700 million worth of selling volume, estimated to be government intervention, poured into the foreign exchange market. This is equivalent to 8% of the transaction value of the Seoul foreign exchange market (about US$8.7 billion). The market believes that the government has begun to intervene in large-scale selling of the dollar. It is speculated that the foreign exchange authorities may have used a ‘lunch bomb’ strategy that lowered the exchange rate by selling large-scale dollars during lunchtime, when trading was slow during the 2008 global financial crisis.
Deputy Prime Minister Choo also said at a plenary meeting of the National Assembly’s Planning and Finance Committee on the same day, “If there is an excessive leaning to one side or if anxiety is spreading, we will come up with necessary measures, such as appropriate market stabilization measures, at a necessary time.” This is a stronger statement than usual.
It is unclear whether government intervention will be able to stop the sharp rise in the exchange rate in a situation where the won weakens (the won-dollar exchange rate rises) in the aftermath of a strong dollar. The exchange rate closed at 1,933 won and 70, up 2 won by 80 despite government intervention.
President Yoon Seok-yeol had a luncheon meeting with Bank of Korea Governor Lee Chang-yong, Financial Services Commission Chairman Kim Joo-hyun, and Financial Supervisory Service Chairman Lee Bok-hyeon at the Yongsan Presidential Office on the same day and said, “As the high inflation situation continues for a considerable period of time and central banks of major countries are expected to sufficiently raise interest rates, key indicators and market Please check the situation in advance.”
6 won came down after 40 minutes of government intervention… Last-minute increase of 2.8 won to threaten 1,400 won
Market line “level of speed control”… Observation of a matter of time to break through 1,400 won
The foreign exchange authorities actively defended the exchange rate on the 15th is interpreted as a measure to control the speed at which the won-dollar exchange rate reaches the psychological margin of 1,400 won. However, it will not be easy to reverse the strong dollar flow, given that the US central bank (Fed) is not slowing down the rate hike, and concerns about the economic slowdown from Europe and China are growing.
○ The foreign exchange authorities seem to have begun to intervene
It was around 1:20 pm that the foreign exchange authorities intervened verbally that day. After the won-dollar exchange rate soared to 1,397 won and 90 cents, he intervened verbally in 10 minutes. At the same time, the foreign exchange market was flooded with selling volumes. Just 30 minutes ago, from 12:30 PM to 1:00 PM, the trading volume was $554 million, but between 1:00 PM and 1:30 PM, the volume surged to $1.367 billion. As a result, there was speculation in the market that the foreign exchange authorities poured out more than $700 million in actual intervention. This is equivalent to 8% of the total trading volume ($8.712 billion) on the day.
Some believe that the foreign exchange authorities used the ‘lunch bomb’ strategy, which was mainly used during the 2008 financial crisis. The lunchbox bomb refers to a large-scale intervention in dollar selling during lunchtime by the foreign exchange authorities during the financial crisis. This is because the transaction volume is relatively small during lunch time, so the maximum effect can be enjoyed while minimizing the amount of intervention. However, an official from the foreign exchange authorities said, “We cannot confirm whether there was any intervention.”
Due to the intervention of the foreign exchange authorities, the exchange rate fell sharply to 1391 won per dollar at 1:40 pm. After peaking, it plummeted by more than 6 won in just 30 minutes. However, the won-dollar exchange rate turned upside down again before the close of the market, ending trading at 1393 won 70, up 2 won 80 from the previous day. A market official said, “Compared to the actual intervention of 4 to 5 billion dollars during the global financial crisis, it was not a large scale.”
○“1400 won is a psychological margin”
The reason why the foreign exchange authorities took an active role in defending the exchange rate on that day was because they judged that the upward trend of the won-dollar exchange rate was too steep. In particular, it is analyzed that the strong will to defend against the won-dollar exchange rate exceeds 1,400 won was analyzed. This is because ‘1 dollar = 1,400 won’ is an exchange rate level that has not been seen since the financial crisis of 1999 and the global financial crisis of 2008. If the won-dollar exchange rate exceeds 1,400 won, the sense of crisis for economic entities may increase.
Moon Hong-cheol, a researcher at DB Financial Investment, said, “The won-dollar exchange rate is threatening to reach 1,400 won in less than a month after breaking through 1,350 won on the 29th of last month. I would have had no choice but to go.” The central bank of Japan is also said to have intervened to defend the yen-dollar exchange rate of 145 yen.
Although the foreign exchange authorities have put out the urgent fire, there are many predictions that it is only a matter of time before the 1,400 won breakout. This is because it is expected that the pace of the Fed’s rate hike will continue due to prolonged US inflation (inflation). Markets are also predicting that the Fed will take an ‘ultra-step’ (a 1 percentage point increase in the key interest rate at a time) at the Federal Open Market Committee (FOMC) scheduled to be held on the 20th and 21st (local time).
The possibility of a slowdown in Europe’s economy is growing as Russia’s gas supply cuts off. The Bank of Korea sees a 32% chance of a European economic downturn within the next year. This is more than twice the probability of a recession in the United States within one year (15%).
Here, there are only factors that increase the upward pressure on the won-dollar exchange rate, such as city blockades due to the re-spread of Corona 19, risks from China due to the contraction of the real estate market, and the slowdown in the semiconductor industry, Korea’s main item. As a result, some predict that the won-dollar exchange rate will exceed 1,400 won and rise to 1,450 won.
Baek Seok-hyeon, an economist at Shinhan Bank, said, “It is inevitable that the won-dollar exchange rate will rise by the end of the year.
By Jo Mi-hyeon/Jwa Dong-wook, staff reporter [email protected]