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BOK warns increased financial volatility amid U.S. Fed’s hawkish stance

Collected: 2023.10.05

Distributed: 2023.10.06

Source: Go Direct

[Courtesy of BOK]

The Bank of Korea (BOK) warned Wednesday that volatility could rise in the local financial and foreign exchange markets amid rising U.S. yields in response to the prolonged hawkish stance of the U.S. Federal Reserve.

During a meeting to monitor developments over the week-long Chuseok holiday, BOK’s Deputy Governor Yoo Sang-dae said that global financial volatility has increased sharply as a growing chance of prolonged hawkish stance from the U.S. Fed has lifted the U.S. Treasuries yield to go up sharply amid high oil prices.

“The local financial and forex markets remain prone to higher volatility, which requires more caution and detailed monitoring for cash flows and price indicators,” Yoo said, vowing to introduce necessary measures for market stability.

The treasury yields in major economies have risen during the Chuseok holiday in Korea.

The yield increases were driven by a mixture of factors, such as a halted shutdown of the U.S. government following the passage of a short-term funding bill Saturday and the recent remarks made by some U.S. Fed’s officials in favor of further tightening, in addition to better-than-expected price indicators.

“The most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals,” Fed’s Vice Chair for Supervision Michael Barr said Monday.

Although Korea’s won remained weak against the U.S dollar, its credit default swap (CDS) premium stood at a relatively low 35.9 basis points.

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