The dollar has soared to a 20-year high as fears of a global recession drive investors to perceived safe-haven assets. The dollar index, which shows the value of the greenback against the six major currencies including the euro and yen, rose to 106.70 on Tuesday, the highest in 20 years. The won is weakening apace, falling to W1,311 against the greenback just two minutes after trading began on Wednesday, the lowest in 13 years. It eventually closed at W1,306.30. The Korea Composite Stock Price Index plunged to 2,292.01 points, falling below 2,300 points for the first time in a year and eight months.
The euro also plunged to a 20-year low at $1.03 amid fears of a eurozone-wide economic slump. Inflation fears are spreading, but the European Central Bank is refusing to hike interest rates faster. The ECB kept the key interest rate unchanged at zero percent in June and said it would raise it in July for the first time in 11 years. The U.S. Federal Reserve, in contrast, boosted the key rate by 0.75 percentage point last month.The dollar is expected to continue strong as the Fed aggressively boosts interest rates and the global recession deepens, forcing investors to flock to safe-haven assets. A strong dollar makes it more expensive for Korea to import goods and increases the trade deficit. According to the Korea Customs Service, the country's trade deficit in the first half reached $10.30 billion, the worst in 66 years. Baek Seok-hyun at Shinhan Bank said, "There is no guarantee that the dollar will even peak within this year. Even if inflation eases, consumer prices are likely to remain high."