The won-dollar exchange rate started in the 1300 won range for the first time since the state of emergency was declared. This was influenced by the news of trade negotiations between the United States and Taiwan, which strengthened the Taiwanese currency, leading to an increase in the value of the won.
On the 7th, in the Seoul foreign exchange market, the won-dollar exchange rate started at 1,380.0 won, down 25.3 won from the previous trading day's weekly transaction closing price (as of 3:30 p.m.), marking the first time it fell below 1,400 won since December 2 last year (1,396.0 won). Based on the opening price, this is the lowest since November 6 last year (1,374.0 won).
The sharp drop in the exchange rate was influenced by rumors that there was pressure from the U.S. side for appreciation during the trade negotiations with Taiwan. In the two business days on the 2nd and 5th, the value of the Taiwanese dollar soared by 9%, reaching its highest level in three years. Even after the Central Bank of Taiwan officially denied the U.S. appreciation pressure, the Taiwanese dollar continued to show strength.
The strength of the Taiwanese currency led to increased demand for currency hedging from Taiwanese insurance companies, which in turn raised the value of the won, the proxy currency for the Taiwanese dollar. In Taiwan, it is common to use the won for currency hedging instead of the domestic currency due to a lack of liquidity.
The market is paying attention to the possibility that the exchange rate may drop to the early 1300 won range. Since the exchange rate is included as a key issue in the negotiations with the U.S., there is growing optimism that if the negotiations progress, the value of the won will appreciate. If the strength of the won continues, the selling pressure of foreign investors' domestic stocks may weaken, increasing demand for the won.
Kwon Ah-min, a researcher at NH Investment & Securities, projected that the exchange rate could drop to 1,330 won within the year, noting, “Since the exchange rate is included as a key issue in the negotiations with the U.S., it is believed that additional betting on a further decrease in the exchange rate is ongoing.”
Min Kyung-won, a researcher at Woori Bank, said, “The strengthening of the won long sentiment during the holidays along with the Asian currency's strength has led to a definitive start in the exchange rate decline that had been sluggish in March and April,” predicting that the exchange rate could drop to 1,340 won.