Won Strength and Rate Decisions in Focus…Markets Await FOMC and Key Data
The won strengthened to 1,322 per U.S. dollar, down about KRW 4.20 from the previous close. A stronger won can reduce costs for companies that import fuel, such as airlines, but companies that process imported materials for export also need to weigh the currency's effects.
A weaker exchange rate can ease the burden on households that consume imported goods such as food ingredients. However, a strong won is not always beneficial to the economy and stock market, and its impact on Korean companies can vary by industry given the complexity of their export and import structures. A rate in the 1,200s was also discussed as a possibility, though the view expressed was that markets should watch whether it is reached and how conditions respond.
The U.S. Federal Open Market Committee will meet from Tuesday through Wednesday local time, with its decision and the Fed chair's press conference scheduled for the early hours of October 29 Korea time. Markets broadly expect the policy rate to remain unchanged, but comments on the possibility of another rate hike by year-end and the future path of rates are key variables.
The European Central Bank and the Bank of Japan are also due to make rate decisions this week, with a hold seen as the prevailing expectation, according to the report. Inflation pressures and member states' fiscal conditions were cited as obstacles to policy decisions in Europe, while in Japan attention is focused not only on whether rates will be held but also on the pace of rate increases over the medium to long term. The United States is due to release September personal consumption expenditures inflation data and its advance third-quarter GDP estimate; Korea is set to publish its consumer sentiment index and advance GDP estimate.