I never thought it would soar like this… Exchange rate outlook, only two predictions are made with tweezers

The won-dollar exchange rate, which was 1,288 won at the end of last year, closed at 1,300 won and 40 won on January 2, the first opening day of this year. The exchange rate in the 1,300 won range, which started at the beginning of the year, will continue until the end of March, leading to an assessment that ‘1 dollar = 1,300 won range’ has become the new normal. This month, employment, prices, and consumption in the U.S. all exceeded expectations, weakening expectations of a U.S. interest rate cut and escalating the crisis in the Middle East, making the rise even steeper. On the 16th, it exceeded 1,400 won intraday for the fourth time in history. According to the financial world on the 26th, the average won-dollar exchange rate, which was 1,320 won 74 won in the fourth quarter of last year, rose to 1,329 won 40 won in the first quarter of this year and 1,368 won 17 won this month (as of the 1st to 26th).

○ “Rising in the second quarter”… Only two hits

This year’s exchange rate trend greatly missed the predictions of most domestic and foreign financial companies made at the end of last year. Most financial companies expected the exchange rate to remain in the low 1,300 won range in the first quarter of this year and then drop to the 1,200 won range in the second quarter. It was a prediction based on the assumption that the U.S. Central Bank (Fed) would cut interest rates as many as six times by the end of the year, starting as early as March of this year. Domestic financial companies such as Korea Investment, Meritz Securities, Hana, Shinhan Bank, and NH Futures predicted that the exchange rate would hit 1,290-1,350 won in the first quarter of this year and then fall to 1,270-1,300 won in the second quarter. Foreign investment banks (IBs) such as Goldman Sachs, Morgan Stanley, and Nomura were similar.

Two financial companies are attracting attention by predicting the exchange rate trend until this month with different forecasts. NH Investment & Securities and Woori Bank. In a report presented in November last year, NH Investment & Securities predicted that the exchange rate in the first quarter of this year would average 1,320 won and then rise further to 1,360 won in the second quarter. It is close to the average exchange rate from the 1st to the 26th of this month (1,368 won and 17 won). Woori Bank also predicted that the upward trend will continue from 1,350 won in the first quarter of this year to 1,360 won in the second quarter.

The reason the two companies were able to provide relatively accurate forecasts is that they evaluated the fundamentals of the U.S. economy as more important than the possibility of an interest rate cut. Kwon A-min, an economist at NH Investment & Securities, said, “We believe the United States will strongly regain its status as a hegemony through technological advancement and investment in growth industries. There are expectations of an interest rate cut by the Fed, but considering the interest rate difference with other developed countries and prices, this is not enough.” “We do not expect the dollar to weaken,” he said. Min Kyung-won, an economist at Woori Bank, has strongly suggested a September interest rate cut since expectations for a U.S. interest rate cut were high. This is because expectations of an early interest rate cut are judged to be excessive.

○ Uncertainty is high… “Difficult to predict”

Of course, the reason why it was difficult to predict the exchange rate this year was because of global unexpected variables. The escalation crisis between Israel and Iran was a factor that was difficult to predict at the end of last year. A researcher in charge of exchange rates at a securities firm said, “There are too many variables that affect the exchange rate,” and “it is quite difficult to forecast.”

Some are predicting that because only the first month of the second quarter has passed, the ‘predicted report card’ may change by the end of June. For example, on the 25th, if the fact that Korea’s first quarter gross domestic product (GDP) increased surprisingly, while the U.S. first quarter GDP was slower than expected, raising doubts about the strong U.S. economy, etc. are reflected, the value of the won may rise and the exchange rate may fall. Here’s the explanation.

In the third quarter, one of NH Investment & Securities and Woori Bank is expected to have a wrong prediction. NH Investment & Securities forecasts that the average exchange rate in the third quarter will rise further to 1,370 won, while Woori Bank predicts it will fall to 1,330 won.

Reporter Kang Jin-gyu [email protected]