Concerns rise over the won’s decline, with fears it may reach 1,500 won per dollar due to political uncertainty surrounding President Yoon Seok-youl.
1Bird ★.Dec. 9, 2024 (Mon) 08:05:26.79ID:MoeA5vFD
There are concerns that growing political uncertainty surrounding the impeachment of President Yoon Seok-youl could lead to a further decline in the won’s value. There are fears that the exchange rate may not only become fixed at around 1,400 won per dollar, but may even reach the 1,500 won range in the worst case scenario. According to the Seoul foreign exchange market, the won has depreciated by 24.5 won over the past week. This is the largest drop in about 11 months since the 25.50 won drop from January 15th to 19th. On the day the state of emergency was declared on the 3rd, the won fell to 1,442 won in night trading, the lowest level in over two years since October 2022. The problem is that political uncertainty has grown even greater since the impeachment motion against President Yoon was rejected. Adarsh Sinha of Bank of America (BoA), a major US bank, told Bloomberg on the 7th that “the failure to pass the impeachment motion against President Yoon is highly likely to cause the won to plummet on the Seoul foreign exchange market on the 9th.” “The economy is not doing well and the possibility of an interest rate cut is increasing, and the failure to impeach would further prolong political uncertainty,” he said. He added, “Not only political uncertainty but also economic fundamentals are putting downward pressure on the won.” As the dollar has continued to appreciate since Donald Trump was elected president of the United States, the “won discount” phenomenon has intensified due to the combination of martial law and impeachment politics. The won has fallen the most among major currencies over the past week. Last week, the won fell 1.86% against the dollar, while the euro rose 0.03%, the yen 0.10%, the pound 0.26% and the Taiwan dollar 0.51% against the dollar. The Chinese yuan fell 0.36 percent and the Australian dollar fell 1.32 percent, but the declines were smaller than those of the won. Investment bank Barclays pointed out that “the won is one of the currencies in Asia most vulnerable to the Trump tariffs,” and analyzed that “political and economic uncertainty could affect the flow of foreign capital to South Korea, which could ultimately put a strain on the won.” There are predictions that unless political uncertainty is resolved soon, the exchange rate will remain in the 1,400 won range until the first quarter of next year. “We predicted the rate would be in the early 1,400 won range under the assumption that the impeachment political process would be concluded smoothly, but if the impeachment bill is rejected and the situation drags on, we may have to look to 1,450 won,” said Seo Jeong-hoon, a senior research fellow at Hana Bank, on the 8th. “We will likely overcome difficult obstacles until the first quarter of next year, and the exchange rate will likely remain volatile as the dollar continues to remain strong.” Park Sang-hyun, a researcher at iM Securities, also said, “The rejection of the impeachment motion will deepen political instability and could encourage further foreign investors to flee, putting pressure on the won to weaken.” A sustained depreciation of the won will likely fuel rising import prices, which in turn will lead to higher prices and higher interest rates. South Korea has a low food self-sufficiency rate and imports a lot of food ingredients, so if the prices of various food ingredients such as flour and cheese rise, food prices are likely to rise as well. If consumption shrinks, the slump in domestic demand will deepen. Furthermore, if problems arise in fundraising and profitability in industries and companies such as steel, semiconductors, petrochemicals, and transportation, the financial institutions that have lent to these companies may also find their financial health deteriorates. A financial source said, “We are being cautious as it could stir up market anxiety, but considering that domestic demand has yet to recover and creditworthiness could fall, the possibility of the rate reaching the 1,500 won range per dollar has become more likely.” JoongAng Ilbo Japanese Edition 2024.12.09 07:27.
>>3 If it gets to that point and a big part can’t withstand it and collapses, it’s likely to cause a chain reaction of events. What measures can be taken to prevent this from happening? Tax revenues are insufficient and the country’s leaders are in a situation where it seems like an impossible game.
>>13 He’s a prime minister who is always watching, so I don’t know what he’s thinking In the first place, he has votes from the tax increase glasses faction, so I think he’ll make some suspicious moves.
>>16 Tax increase glasses are genuinely anti-China, unlike Abe, Suga, and Ishiba, who have been sucking up to China and transferring Japanese technology to it, calling it a strategic mutually beneficial relationship.
If the exchange rate exceeds 1,500 won to the dollar, it will be the greatest achievement since the Lehman Shock. If the wonyes continue and import prices rise, it will become difficult to lower interest rates, so I wonder if the jeonse bomb will explode while we wait.
It all comes down to President-elect Trump’s opinion that US troops should be withdrawn from South Korea. The underlying tone is that the Trump administration will withdraw US troops from South Korea. At the same time, there are concerns that the US will carry out an economic scorched earth operation on South Korea. Everyone is hesitant.
> In the worst case scenario, we may reach the 1,500 won range. There’s no need to worry about that. 1,500 won to the dollar will not be the worst, it will get even worse, and the days of the 1,500 won range will be gone in the blink of an eye.
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