As the U.S. midterm election results loom, the USD's continued strength has pushed the USD-KRW exchange rate higher at the start of trading. Despite a rebound in U.S. tech stocks, rising Treasury yields are bolstering the USD, limiting any potential gains for the KRW.

As of 9:00 a.m. (KST) on Wednesday, the USD-KRW exchange rate in the Seoul foreign exchange market was trading at 1,344.0 KRW (about 1.01 USD), up 3.0 KRW (about 0.00225 USD) from the previous day's closing price at 3:30 p.m. (KST).

Recent active capital flows between stocks and bonds in global financial markets have prevented stock price increases from weakening the USD. Instead, analysts suggest that rising U.S. Treasury yields, driven by the stock market rebound, are fueling USD strength.

Lim Hwan-yeol, an economist at Woori Bank, predicts that as it awaits the U.S. midterm election results, it expects the exchange rate to climb to the mid-1,340s KRW (about 1.01 USD), propelled by the strong USD globally, despite the resurgence of the artificial intelligence (AI) rally.

He elaborates that the frequent shifts in funds between stocks and bonds have resulted in stock rebounds being linked to rising Treasury yields rather than a weaker USD. Consequently, even if domestic stocks rise, it doesn't anticipate it will strengthen the KRW.

USD payment demands from importers and increased USD purchases by domestic investors expanding their overseas stock portfolios are also driving the exchange rate higher.

However, USD selling pressure from semiconductor exporters is expected to curb the exchange rate's upward momentum. When exporters convert their USD earnings to KRW, it boosts USD supply, exerting downward pressure on the exchange rate.

Lim notes that after the exchange rate rebounded from the 1,320 KRW (about 0.99 USD) level, the impact of selling pressure at 1,340 KRW (about 1.01 USD) has diminished compared to before. Nevertheless, it continues to act as a restraining factor on the exchange rate's rise throughout the day.

He adds that today, despite the KOSPI's intraday gains, it expects the exchange rate to fluctuate around the mid-1,340s KRW (about 1.01 USD), pressured by a strong USD driven by rising Treasury yields. After regular trading hours, it anticipates the selling pressure will ease, potentially leading to a wider increase.

Market participants are also keenly watching how the exchange rate will react to the midterm election results. While the prevailing view is that a Democratic blue wave - control of both the House and Senate - could weaken the USD, some analysts offer contrasting perspectives.

Lim observes that the market generally expects a blue wave to result in a weaker USD. However, if Democrats secure majorities in both chambers, increased speculation about President Donald Trump's potential impeachment could paradoxically strengthen the USD.

As the U.S. midterm election results loom, the USD's continued strength has pushed the USD …

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