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Rising US treasury yields pushing exchange rate higher

Dealers at Hana Bank in Seoul, Wednesday / Yonhap
Dealers at Hana Bank in Seoul, Wednesday / Yonhap

By Lee Min-hyung

Rising U.S. 10-year treasury yields are putting the brakes on the dollar's weakening valuation amid hopes of an economic recovery here and abroad.

The prevailing view was that safe assets ― such as the U.S. dollar ― will depreciate from a medium- to long-term viewpoint as the global economy emerges gradually from the coronavirus pandemic.

The yield on 10-year U.S. treasuries rose to 1.47 percent as of Wednesday, while the yield on 30-year bonds climbed to over 2.2 percent.

This led to a strengthening of the U.S. dollar against the Korean won on the local foreign exchange market. On Thursday, the Korean won weakened 6.7 won per dollar to 1,127 won.

Market analysts argued that rising U.S. treasury yields will slow down a longer-term depreciation of the dollar in the global economy after the pandemic ends.

"On the economic front, an economic recovery here and abroad is a factor to boost the dollar's depreciation," Hyundai Motor Securities economist Oh Chang-sup said. After the pandemic shock comes to an end and the global economy gets back on track for a recovery, investors will prefer risky assets ― such as stocks from emerging markets, according to him.

Even if the rising U.S. treasury yield will boost the dollar's appreciation in the foreseeable future, this will not be sustainable, according to the economist.

"But the rise in treasury yields will slow down the dollar's depreciation," he said.

As of the end of February, the Korean currency strengthened by about 10 won against the dollar, compared to a month earlier, amid prevalent hopes for the global economy to achieve a rebound possibly in the latter half of 2021.

This enabled Korea's foreign exchange reserve to grow by $4.83 billion at the end of last month compared to January. According to data from the Bank of Korea, the foreign exchange reserve here in February reached a new record high of $447.56 billion.

Last month, the U.S. Dollar Index dropped by 0.4 percent. The index is an indicator used to compare the value of the U.S. dollar relative to six world currencies ― such as the euro, Japanese yen and British pound.

The won closed Thursday at 1,125.1 won, up by 2.6 won or 0.23 percent, against the dollar from the previous close on the local exchange.


Lee Min-hyung mhlee@koreatimes.co.kr


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