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USD/KRW Hits 14-Year High on Hawkish Powell

USD/KRW Hits 14-Year High on Hawkish Powell

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The USD/KRW trading pair jumped to the highest since 2008 on Monday, after Fed Chair Powell toed the hawkish line at Jackson Hole.

The Korean won is weaker against the US dollar at the start of the new trading week. At the time of writing, the won is changing hands at 1,347.70 (+0.44 percent), a 13.25 percent decline against the greenback year-to-date.

This morning’s push follows the Jackson Hole meeting of central bankers and economists, that took place last week.

The annual meeting, sponsored by the Federal Reserve of Kansas City, brings together the world’s most important economic minds.

This year the focus was firmly on inflation. Specifically, how the FOMC plans to deal with it.

Invoking former Fed Chair Volcker, Powell came out swinging.

“During the 1970s, as inflation climbed, the anticipation of high inflation became entrenched in the economic decision-making of households and businesses. The more inflation rose, the more people came to expect it to remain high, and they built that belief into wage and pricing decisions. As former chair Volcker put it at the height of the Great Inflation in 1979, ‘Inflation feeds part on itself’, so part of the job of returning to a more stable and more productive economy must be to break the grip of inflationary expectations..”

Powell’s statement dashed hopes that the central bank would adopt a less-hawkish tone soon:

“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance.”

Risk assets took the news badly. US stock markets lost more than $1 trillion of value on Friday and are forecast to open lower today. In turn, the US dollar saw massive risk-off inflows, lifting it higher against major trading partners, including the Korean won.

Dollar to Korean Won Forecast

The daily chart shows USD/KRW is in price discovery mode above the recent highs.

The pair sees good support at July’s 1,330 high and the 50-Day Moving Average (DMA) at 1,309.10 (green line). Considering the US dollar strength, an extension into the 1,360 – 1,380 trading range looks likely.

However, the Relative Strength Indicator (RSI) of 67.60 is approaching overbought territory. With this in mind, it may limit gains in the near term.

The outlook is positive as long as USD/KRW is above the 50-DMA. For that reason, a close below 1,309 flips the view from bullish to neutral.

Check out the cheapest way to send money to Korea.

USD/KRW Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.