[Shin Yoon-woo's FX Analysis] The Weight of Supply-Demand Dynamics

(Seoul=Yonhap Infomax) On the 25th, the dollar-won exchange rate is expected to open in the mid-1,470 won range.

Persistent supply-demand imbalances continue to push the dollar-won rate higher.

Exporters remain reluctant to sell at current elevated levels, while importers and overseas investment-related demand for dollars is actively flowing into the market.

Additionally, foreign investors have been selling South Korean equities, leading to increased custodial dollar buying and driving the upper bound of the dollar-won rate even higher.

Despite a brief pause in the strong dollar and weak yen trend the previous day, the supply-demand imbalance has propelled the dollar-won rate upward, defying external market conditions.

With no immediate signs of resolution, market participants continue to focus on the upside potential.

Globally, the dollar remains strong and the yen weak, adding upward pressure to the dollar-won rate.

The dollar index remains above 100, while the dollar-yen rate hovers around 157 yen, making it difficult to expect a decline in the dollar-won rate.

However, the market perceives the 1,480 won level as a short-term peak, suggesting that further upside attempts may be limited.

Notably, the recent actions of the foreign exchange authorities and the National Pension Service (NPS) are expected to curb excessive long positions.

The Ministry of Economy and Finance, Bank of Korea, Ministry of Health and Welfare, and NPS held their first meeting as a four-party consultative body the previous day.

This consultative group aims to assess the impact of NPS's overseas investment activities on the FX market and discuss ways to achieve both NPS profitability and FX market stability.

With the FX authorities and NPS strengthening their cooperation, expectations are rising for measures such as extending and expanding currency swaps and enhancing FX hedging.

Previously, during periods of high exchange rates following the martial law crisis, NPS actions contributed to stabilizing the dollar-won rate, and the market is well aware of this influence.

As the fourth consultative body has just launched, it is unlikely that the NPS will take immediate action, but the upper bound support for the dollar-won rate is expected to become more robust.

Growing expectations for a U.S. rate cut are also limiting the potential for further dollar-won gains.

John Williams, President of the Federal Reserve Bank of New York and the Fed's third-ranking official, recently hinted at the possibility of a rate cut in the near future. Additional comments from senior Fed officials have further fueled expectations for a December rate cut.

Christopher Waller, a Fed Governor, told Fox Business that "inflation is not a major concern in a weak labor market," expressing support for a rate cut as early as next month.

Mary Daly, President of the Federal Reserve Bank of San Francisco, also highlighted the urgency of a rate cut, citing the risk of a sharp deterioration in the labor market in an interview with foreign media.

Meanwhile, the Dallas Fed reported that manufacturing activity in Texas contracted for a fourth consecutive month, all factors supporting a U.S. rate cut.

According to CME FedWatch, the federal funds rate futures market is currently pricing in an 82.9% probability of a Fed rate cut in December.

While the global dollar has yet to show a corresponding downward trend, these developments suggest a potential for a weaker dollar going forward.

Foreign investor activity in the domestic stock market remains a key factor to watch.

Overnight, the New York stock market surged, led by technology stocks, raising hopes for a rebound in the KOSPI and renewed foreign buying.

The Dow Jones Industrial Average and S&P 500 rose 0.44% and 1.55%, respectively, while the Nasdaq Composite jumped 2.69%.

Foreign investors net sold 3.6 trillion won ($2.7 billion) of stocks over the past two trading days on the Korea Exchange. Should this trend reverse, it could open the door for a decline in the dollar-won rate.

Several key U.S. economic indicators are scheduled for release tonight, including the ADP private employment report, September retail sales, producer price index (PPI) for the same month, the Conference Board's November consumer confidence index, pending home sales for October, and the Case-Shiller home price index for September.

Market participants will closely monitor how this data may influence the Federal Reserve's policy path.

In overnight trading ending at 02:00 KST, the dollar-won rate closed at 1,476.50 won, down 0.60 won from the regular session close.

In the New York non-deliverable forward (NDF) market, the one-month dollar-won contract was last quoted at 1,472.80 won (mid),

which, considering the recent one-month swap point of -2.15 won, represents a 2.15 won decline from the previous Seoul spot market close of 1,477.10 won.

(Market Team, Economics Department)

ywshin@yna.co.kr

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