19.09.202502:20:22UTC+00Won Extends Losses on Fed Signals, BOK Constraints

The South Korean won depreciated to approximately 1,394 per dollar on Friday, marking its third consecutive day of decline, as the U.S. dollar strengthened against Asian currencies. This occurred following the Federal Reserve's 25 basis point interest rate cut and its forecast of two additional reductions within the year. Although the dot plot suggested a more lenient approach, Federal Reserve Chairman Jerome Powell's cautious comments cast uncertainty over the possibility of a prolonged easing cycle. On the domestic front, sentiment was further dampened by warnings from Bank of Korea Governor Rhee Chang-yong. He cautioned that South Korea might soon confront the effective lower bound due to the rapid aging of its population, which could diminish the effectiveness of rate cuts. His statements emphasized the narrowing of policy options in South Korea, a situation that could render the won more susceptible to fluctuations in global interest rates and capital flows. Governor Rhee pointed out that relying on quantitative easing and foreign exchange intervention might have unintended negative consequences. Instead, he advocated for a funding-for-lending scheme and structural reforms to enhance labor force participation, immigration, and regional development.