- The US dollar has rallied rather significantly against the Korean won during trading on Thursday, as we continue to see traders look at the tight monetary policy coming out of the Federal Reserve as a major problem for other emerging market currencies.
- While the South Korean economy is very strong from a longer-term standpoint, the reality is that there is a certain amount of risk when you invest in South Korea, and you see that play out in the currency markets.
It’s worth noting that there is a 2% differential between the United States and South Korea, so therefore it makes a lot of sense to hold US dollars. Furthermore, the Federal Reserve is likely to remain somewhat stubborn when it comes to loosening monetary policy, because inflation is still rather hot in the United States, but we also have a presidential election, the Federal Reserve will not want to appear to be doing anything to influence what happens next. In other words, time is running out for any rate cuts this year, at least until the election is over.
It is assumed that the Federal Reserve is apolitical, and while that is somewhat true, the reality is that behind the scenes they seem to be pushed around by politicians, so the lesson they want to do is make it obvious.
Technical Analysis
The US dollar has just formed a massive “V pattern” against the Korean won, and therefore it looks very likely that we are going to continue to see this pair try to break out to a fresh, new high. That would essentially mean that we are looking at the 1400 KRW level, an area that had been significant resistance previously.
Underneath, the 50-Day EMA is near the 1370 KRW level, and therefore it is likely to be a situation where that will continue to be a technical signal that a lot of people pay attention to. Furthermore, it’s probably worth noting that most Asian currencies are in trouble at the moment, so it’s hard to believe that the South Korean currency will be any different than Japan, Singapore, China, etc.
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