Won, stocks dip on anticipation of “big step” rate hike

Posted on : 2022-10-12 16:54 KST Modified on : 2022-10-12 16:54 KST
Korea’s benchmark index closed below 2,200 points again on Tuesday
A person stands in front of monitors displaying the day’s KOSPI and exchange rate figures in the Hana Bank dealing room in downtown Seoul on Oct. 11. (Yonhap)
A person stands in front of monitors displaying the day’s KOSPI and exchange rate figures in the Hana Bank dealing room in downtown Seoul on Oct. 11. (Yonhap)

The KOSPI fell below 2,200 points once again on Tuesday, while the won-dollar exchange rate rose sharply by nearly 23 won, nearing its previous high. US employment indicators released last week shook the market with fears that the US Federal Reserve will continue its intensive monetary tightening.

Further increasing market volatility were expectations that the Bank of Korea’s (BOK) monetary policy board would take a “big step” of raising the base rate by 50 basis points on Wednesday.

The KOSPI closed Tuesday at 2,192.07, down 1.83% (40.77) from the previous trading day. This is the first time in five trading days that it has closed below the 2,200-point level, the last being Sept. 30 (2155.49).

Meanwhile on the Seoul foreign exchange market, the exchange rate closed at 1,435.2 won to the US dollar, up 22.8 won from the previous trading day. The closing price exceeded 1,430 won once again, a mere five days since it last did so.

The rate of increase from the previous trading day was highest after March 19, 2020 (40 won). At one point during trading, the exchange rate rose as high as 1,438.10 won to the dollar, approaching the recent peak recorded on Sept. 28 (1,442.20 won).

The financial market was roiled Tuesday as expectations that the Fed dashed hopes that it would pump the brakes on its swift series of rate hikes.

According to US employment figures released on Friday, the US added 263,000 new jobs in the non-agricultural sector in September, a decrease from the previous month (315,000) but a higher number than market expectations.

The US unemployment rate also fell to a 50-year low of 3.5%. The fact that the US job market still seems to be solid challenged market expectations that the Fed could slow down the pace of its policy rate hikes if new job figures were down.

The geopolitical risks surrounding Russia and Ukraine are also raising investors’ preference for safe assets. Apprehension over the schedule’s BOK monetary policy board meeting could be seen in the market.

Market watchers predicted that Korea’s central bank would raise the base rate from 2.5% to 3.0% per year in another “big step” (a 0.5-point increase) following the one in July.

By Jun Seul-gi, staff reporter

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