This illustrates the simultaneous pressure on financial markets from falling oil prices, rising US Treasury yields, and a strengthening dollar. It shows that while Middle East-related risks have eased, high interest rates remain the primary burden on the market. [Image=Hanmiilbo]

Won-Dollar Exchange Rate Retreats from 1558 Won, but 1500 Won Barrier Remains

Last week's key market checkpoints were whether the US-Iran conflict would reignite international oil prices and inflation, whether strong US employment data would lead to actual interest rate hikes, and whether the won-dollar exchange rate would fall below 1500 won.

The outcome was a partial easing of geopolitical risks and the persistence of interest rate burdens.

West Texas Intermediate (WTI) crude oil fell from $90.54 per barrel on June 8 to $87.71 on June 12. While it briefly surpassed $90 again during the week following reports of a downed US Apache helicopter and US retaliatory warnings, it gave back its gains after President Trump canceled a strike on Iran and announced that a peace agreement was imminent.

As oil prices fell, concerns about Middle East-driven inflation somewhat subsided. However, the stabilization of international oil prices has not resolved the burden of interest rates.

The yield on US 10-year Treasury notes fell from 4.53% on the 8th to 4.46% on the 12th, but it fluctuated around 4.5% throughout the week. The 2-year yield also decreased to 4.06%, but market caution regarding the possibility of interest rate hikes within the year has not disappeared.

The reason yields did not fall significantly, even with core Consumer Price Index (CPI) and core Producer Price Index (PPI) for May coming in lower than expected, is due to employment.

The US non-farm payrolls significantly exceeding expectations has led to a growing belief that the US economy can withstand higher interest rates.

If the economy is strong, the Federal Reserve has less reason to rush to cut rates. Furthermore, if inflation and oil prices rise again, the possibility of further rate hikes could be considered. Strong employment data has thus become a negative factor for interest rates in the stock market.

The won-dollar exchange rate fell from 1558.14 won on the 8th to 1531.91 won on the 12th. While the sharp depreciation of the won has calmed, it remains above the 1500 won level. It is too early to assume that concerns about foreign investors' currency translation losses have disappeared.

The conclusion of this week's Money Radar is clear. While the immediate threat from international oil prices has somewhat weakened, US interest rates, which are a key determinant of market prices, remain at high levels.

Next week, rather than the Federal Open Market Committee (FOMC)'s base rate decision itself, the subsequent message and the reaction of the US Treasury market will be crucial to watch.

If US 10-year Treasury yields stabilize below 4.5%, the valuation burden for semiconductors and growth stocks could decrease. Conversely, if they rise again to above 4.6%, the rebound seen this week is likely to falter once more.

Next Week's Checkpoints

We need to confirm whether US 10-year Treasury yields settle below 4.5%, whether WTI stabilizes below $90, and whether the won-dollar exchange rate breaks below the 1500 won level.