1. Components of nominal interest rates
The recent exchange rate(USD/KRW) is strong.
The dollar has been strengthening ahead of the December interest rate hike.
The euro has also tapered, but it is still not so tapered as Mario says.
What is interest rate (nominal) composed of?
I = r + inflation
That is, the nominal interest rate is the real interest rate + inflation.
As oil prices are rising and other commodities are rising, inflation is likely to rise in US
The real interest rate is not likely to be lower than other economies if the S & P 500, which tells the US economic situation.
It is very likely that the nominal interest rate in the US will rise next year, and the base rate will be rised twice in line with this.
2. What about our country(South Korea)?
Real interest rates or inflation are not likely to be stronger than the US.
I) Lower real interest rates than the US is a stronger dollar
Ii) The fact that inflation is lower than the US is a strong Korean won.
The key is here.
If the assumption is true, the real interest rate (r) and inflation will have an adverse effect on the exchange rate.
In other words, what we should think about is to determine which elements will work larger.
However, the press concentrates on nominal interest rates.
The US interest rate (nominal) says the dollar is going to be strong.
Not like that.
If economic growth in the United States soars that the real interest rate rises and the nominal interest rate rises,
The dollar is right.
However, if the US economy is in an economy where nominal interest rates rise due to inflation
The dollar is rather weak.
The same is true for nominal interest rates.
Depending on what the cause is, the dollar may be bullish or weak.
If you are an expert in the investment industry, you should analyze your impact as an expert, make investment decisions, and share that information with your customers.
It is very likely that if you look at the economy or the exchange rate by analyzing the correlation between the simple nominal interest rate and the dollar,
3. In conclusion, what about the exchange rate next year?
Only God knows that.
Exchange rate is a very complex economic variable. One (nominal interest rate) is not interpreted solely. It is not easy to analyze the nominal interest rate by dividing it into two effects.
It is not easy to analyze who can have a greater impact on real economic growth and inflation in the United States.
However, if there is an invisible hand in the world and the current P (exchange rate)
The current exchange rate (USD/KRW=1200) reflects the impact of the dollar stronger than thought.
Some say that the nominal interest rate will rise in the market and that the dollar is bullish.
Few people say that nominal interest rates will rise due to inflation, which is a weakening factor for the dollar.
What does this mean?
The dollar strength factor is likely to reflect more than expected.
In any case, is not it likely that the weakness of the dollar will be reflected?
Looking at the exchange rate chart, it has risen more than 15% from the bottom of this year.
So I personally think that the exchange rate could end up as YTD rather than stronger than expected.
Assuming that the year-end exchange rate is at the present level
I think the exchange rate will be below this level at the end of next year. In other words, YTD means that the dollar will weaken in 2017.
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