The USD-KRW exchange rate is falling in early trading as the U.S. Treasury yields plummet, weakening the USD. Experts predict that further declines may be limited due to ongoing risk aversion stemming from concerns surrounding the artificial intelligence (AI) industry.
As of 9:22 a.m. (KST) on Friday, the USD-KRW exchange rate in the Seoul foreign exchange market is trading at 1,341.7 KRW (about 1.01 USD), down 2.8 KRW (about 0.002 USD) from the previous trading day’s weekly closing price.
Overnight in the global forex market, the USD weakened despite U.S. September Producer Price Index (PPI) and retail sales surpassing market expectations.
The U.S. PPI for September rose 6.3% year-over-year and 1.3% month-over-month, while retail sales increased 0.8% from the previous month, beating market forecasts. However, concerns about high debt levels and investment profitability of AI infrastructure companies drove funds into safe-haven U.S. Treasuries.
As a result, the 10-year U.S. Treasury yield plunged 12.7 basis points, and the USD index, which measures the greenback against six major currencies, fell 0.52% to 101.99.
USD selling by exporters is expected to exert downward pressure on the exchange rate. The steady influx of USDs from robust semiconductor exports, coupled with a strengthening yen, is seen as favorable for the KRW.
However, if AI investment concerns continue to fuel risk aversion and trigger foreign selling in the domestic stock market, the KRW could face increased depreciation pressure. Particularly, if semiconductor stocks remain weak and foreign investors continue to sell domestic equities, rising demand for custody USDs could support the lower end of the exchange rate.
Actual USD demand from importers for payments and overseas investments will also help limit further declines.
Min Kyung-won, an economist at Woori Bank, noted that even in a risk-averse environment where the USD weakens, the KRW, as a risk currency, is unlikely to fully capitalize on this effect. He added that today, while the exchange rate will face downward pressure from USD weakness and negotiated selling, risk aversion is expected to provide support at the lower end.