The won-dollar exchange rate broke above 1,560 won intraday for the first time in 17 years, as stronger-than-expected U.S. employment data fueled bets on a rate hike.
In after-hours trading on the Seoul foreign exchange market at 2 a.m. on the 6th, the won-dollar rate closed at 1,559.0 won. At one point intraday it surged to 1,561.5 won, the highest level in 17 years and three months since March 6, 2009 (intraday high of 1,597.0 won) during the global financial crisis. The won-dollar rate had finished daytime trading at 1,539.1 won on the 5th.
The won-dollar rate's further jump in after-hours trading was driven by last month's nonfarm payrolls data, which far exceeded expectations. The U.S. Labor Department said nonfarm payrolls rose by 172,000 in May from April. That was more than double the market forecast of 80,000. In addition, job gains for March and April were revised upward by 29,000 and 64,000, respectively. The combined upward revision for March and April reached 93,000. The May unemployment rate stood at 4.3%, unchanged from April.
The strong employment data spread expectations in the market that the Fed would focus its monetary policy on price stability rather than the labor market for the time being. The U.S. personal consumption expenditures (PCE) price index, which the Fed uses as a benchmark for monetary policy, rose 3.8% year-on-year in April, the highest since May 2023.
The yield on 30-year U.S. Treasuries, a benchmark for U.S. mortgages and prime corporate bonds, immediately surged and again broke above the psychological resistance line of 5.0% intraday. The 10-year yield, the benchmark for the global bond market, also exceeded its psychological resistance line of 4.5%. The yield on two-year U.S. Treasuries, which is sensitive to monetary policy, jumped 0.12 percentage point from the previous session to as high as 4.17% intraday, the highest level since February last year.
According to the CME FedWatch Tool, the federal funds futures market priced in a total 71.1% probability that the Fed would raise its benchmark rate by the end of this year. That was up sharply from 50.5% the previous day. The probability of holding rates steady fell from 47.4% to 27.9%, and the probability of a rate cut fell from 2.2% to 1.0%. When the interest rate on dollar-denominated assets rises, the value of won-denominated assets inevitably falls relatively. Even before the release of the U.S. May employment report, the won-dollar rate had recently shown a steep upward trend amid foreign investors' stock selling and rising crude oil purchase costs due to the prolonged war in the Middle East.
