The dollar-won exchange rate opened lower after U.S. producer prices for July came in below market expectations, following a similar trend in consumer prices and easing expectations for further Federal Reserve rate hikes.
At 9 a.m. Aug. 14 in the Seoul foreign exchange market, the dollar-won exchange rate was trading at 1,416.3 won, down 3.1 won from the previous session’s closing rate of 1,419.4 won at 3:30 p.m.
U.S. producer prices in July, released overnight, were unchanged from the previous month, falling below the market forecast of a 0.2% increase. Core producer prices, excluding volatile food and energy prices, rose 0.2% from the previous month, also below the 0.3% expected increase.
Following the release of July consumer prices, the producer price data also indicated that inflationary pressures remained contained, further reducing expectations for additional Federal Reserve rate hikes. Yields on two- and 10-year U.S. Treasury notes each fell by about 5 to 6 basis points, while the dollar was little changed.
Improved risk appetite following the easing of concerns over higher interest rates also put downward pressure on the exchange rate. Overnight, the Dow Jones Industrial Average rose 0.13%, the S&P 500 gained 0.65% and the Nasdaq Composite advanced 0.81%. West Texas Intermediate crude fell 2.43% to $81.25 a barrel amid easing tensions in the Middle East.
In the domestic market, dollar-selling flows from foreign investors buying South Korean stocks and exporters converting their dollar earnings into won are expected to put downward pressure on the exchange rate.
Meanwhile, payment demand from importers and currency conversion demand related to residents’ overseas stock investments are expected to provide support at the lower end. Continued weakness in the yen, with the dollar-yen exchange rate trading in the mid-159-yen range, is also weighing on the won.
Moon Jeong-hee, an economist at KB Kookmin Bank, said, “The perception that the exchange rate has fallen too much in the short term and strong support at the 1,410 level are factors that could somewhat limit further gains in the won,” adding, “Nevertheless, downward pressure on the exchange rate is expected to persist due to supply-demand factors such as exporter selling.”
