The USD/KRW exchange rate rose for the third consecutive day as traders focused on the actions of the Federal Reserve and the Bank of Korea. It rose to a high of 1,335.43, higher than this month’s low of 1,315.
Bank of Korea decision
The Bank of Korea delivered its August interest rate decision, and as was widely expected, left interest rates unchanged at 3.50% for the 16th consecutive month.
Notably, more bank officials were open to cutting interest rates than in the other meetings, signaling that the BoK would slash them soon.
The central bank’s decision to leave rates intact was because of the recent economic numbers from the country. The headline Consumer Price Index (CPI) rose from 2.45 in June to 2.6% in July, the highest point since March.
While inflation has fallen sharply from the post-pandemic era high of 6.6%, the central bank is concerned that prices remains stubbornly high. It is especially more concerned about house prices, especially in key markets like Seoul. The most recent data showed that inflation expectations rose to 2.9%.
However, there are signs that inflation will start to come down and even drop below 2% in September. This trend will be driven by the government, which is expected to leave the fuel subsidy intact during the month.
Analysts believe that it is just a matter of time before the bank starting cutting rates because the economy is slowing. Recent data showed that the headline consumer sentiment remained above 100 for three straight months even as all sub-indices fell.
Therefore, the bank is likely waiting for the Federal Reserve to start cutting interest rates so that it can start doing the same. In the statement, the bank said that it would:
“Thoroughly assess the tradeoffs among policy variables such as inflation, growth, and financial stability, and examine the proper timing of rate cuts while maintaining a restrictive monetary policy stance.”
Federal Reserve minutes
The USD/KRW exchange rate rose even as the US dollar index sell-off gained steam this week and moved slightly below the support at $101.
This sell-off accelerated after the Fed published the July monetary policy minutes, which showed that some officials were open to cutting rates during the time.
These officials worried that the economy was showing signs of slowing down recently. Nonetheless, most committee members said that the bank should continue focusing on incoming data and then consider cutting in its September meeting.
Notably, most Fed officials are now more concerned about the country’s labor market, which has softened considerably recently. Wage growth fell to 3.4% in July while the unemployment rate rose to 4.3% in July, the highest level since 2021 and much higher than last year’s low of 3.5%.
There are chances that the real jobless rate is higher than expected because of Wednesday’s revision to non-farm payrolls (NFP) for the 12 months to May this year. According to the Bureau of Labor Statistics (BLS), the real payroll increase in that period was over 818,000 lower than what it reported.
Jackson Hole Symposium
Therefore, traders are waiting for Jerome Powell to confirm that the rate cut will happen in September. This confirmation will happen when he addresses the press, central bank officials, and economists at the Jackson Hole Symposium in Wyoming.
In the past, central bank officials have used this meeting to make predictions on monetary policy. The most famous one was Mario Draghi, the then European Central Bank (ECB) governor, who said that he would do “whatever it takes” during the euro crisis in 2011.
Economists expect Powell to hint that the bank would slash rates by 0.25% in its September meeting followed by two more 0.25% cuts later this year.
In addition to the Jackson Hole summit, the USD/KRW exchange rate will react mildly to other important US data. S&P Global will publish the flash manufacturing and services PMI numbers. Economists expect the data to show that the two PMIs dropped to 49.5 and 54 in August.
The US will also release the initial and continuing jobless claims numbers and the latest existing home sales data.
USD/KRW technical analysis
The daily chart shows that the USD to KRW exchange rate found a strong resistance at 1,391, where it formed a double-top chart pattern whose neckline was at 1,340. A double-top is one of the most popular bearish patterns in the market.
The pair has also crashed below the 50-day and 200-day Exponential Moving Averages (EMA), meaning that bears are in control.
Most recently, it has bounced back even as the US dollar sell-off accelerated. Therefore, chances are that the pair wants to retest the neckline at 1,340 and then resume the downward trend. If this happens, the pair will likely drop and retest the support point at 1,315.
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