[ANALYST REPORT] Focus on ECB meeting, China’s GDP and U.S. consumer prices

■ USD-KRW down for the first time in 4 trading days on exporters’ USD selling and easing concerns over Chinese economy


The USD-KRW rate opened October 14 at KRW1,131.0, down KRW4.9 from the previous close. The USD weakened as concerns over China’s economic slowdown triggered the previous day eased. China reported in the morning that producer prices declined at a slower pace and core consumer prices increased further. The USD-KRW rate continued to receive downward pressure on hopes for China’s solid domestic demand and exporters’ USD selling. The rate declined for the first time in four trading days and closed at KRW1,132.1, down KRW3.8 from the previous close.

■ USD gains on prospects of Fed hike this year despite Yellen’s comments on high-pressure economy

Fed Chair Janet Yellen said that the Fed may need to run a high-pressure economy if the recovery falls short of expectations, which would help ramp up investments. The pace of interest rate hike is likely to be moderate, as she seems to be prepared to allow inflation to overshoot in the short term. However, expectations remain that the rate will be raised at the year-end as September retail sales went up 0.6% MoM and producer prices up 0.3% MoM, beating the consensus (+0.2%). The EUR-USD rate fell below USD1.1 and the USD-JPY rate increased to the JPY104 level.

■ USD-KRW to rise on strong USD and sluggish investor sentiment; focus on ECB policy meeting and China’s 3Q GDP data release this week

The USD-KRW rate is expected to open today at KRW1,136, up from the previous close based on NDF exchange rates. The USD should continue to advance against currencies of developed countries on continued expectations for the Fed’s rate hike this year. The USD-KRW rate should receive upward pressure on weakening risk appetite, given the strength of the New York stock market and slight weakness of oil prices. The USD-KRW rate is expected to move in the high-KRW1,130 range. This week focus should be on the ECB’s monetary policy meeting, release of China’s 3Q16 GDP and September economic indicators, and release of U.S. economic indicators including September consumer prices.

Source: Shinhan Investment Corp. / Economist Sung-In Sun (sungin03@shinhan.com)