The won surged more than 13 won against the dollar as the U.S. currency weakened and local stocks rebounded following remarks by Federal Reserve Chair Kevin Warsh. Concerns about foreign stock selling, which had intensified after the previous day's plunge in local equities, eased, while dollar selling by exporters added to the downward pressure on the exchange rate.
The won-dollar exchange rate closed at 1,331.4 won on the 16th in the Seoul foreign exchange market, down 13.2 won from the previous session.
In the morning, U.S. inflation data came in above market expectations, highlighting dollar strength and concerns about further Fed tightening. Caution that foreign investors might continue selling local shares in the wake of the previous day's sharp drop also pushed the exchange rate higher.
The rate reversed course in the afternoon as the dollar turned weaker. Speaking at a dialogue session during the International Monetary Fund's annual meetings, Warsh said inflation is not a phenomenon unique to the United States and that the Fed has made clear it intends to achieve price stability. He also said global economic conditions since the September Federal Open Market Committee meeting had largely developed as expected.
The dollar index (DXY), which measures the greenback against six major currencies, fell from the low 102 range after Warsh's remarks and dropped to 101.813 during the session.
A partial recovery in local equities from the previous day's losses also supported the won. The KOSPI, which had plunged more than 7% a day earlier, rebounded, and a buy-side sidecar was triggered on the KOSDAQ market. Net selling of local shares by foreign investors also narrowed from the previous day, easing custody-related dollar buying that occurs when proceeds from share sales are converted into foreign currency.
Dollar selling by exporters further weighed on the exchange rate. As the rate rose early in the session, exporters appeared to step in with dollar sales, capping the upside.
Warsh was cautious about the rate decision at the FOMC's regular meeting set for the 27th and 28th. "In September the Fed made clear it intends to achieve price stability and withdrew some accommodation," he said, adding that he does not prejudge the meeting.
On the macroeconomic impact of artificial intelligence, he said changes would emerge on the demand side before the supply side. Warsh said AI's effect on the economy would show up first in demand rather than as a supply shock, and that it could also help central banks analyze data and make monetary policy judgments. He added that even if AI transforms the real economy, its near-term effect on employment remains uncertain.
