Foreign Investors Sell Dollar Futures for Three Consecutive Weeks, Increasing Exchange Rate Volatility

Foreign investors have been net sellers of dollar futures for three consecutive weeks, shaking up the short-term flow of spot exchange rates in the Seoul foreign exchange market. Over the past three weeks, foreign investors have sold dollar futures on a weekly basis, with net sales of 173,873 contracts in the week of August 7 and 64,556 contracts in the week of August 14. Up until yesterday, the net sales for this week amounted to 33,300 contracts. On the previous day, more than 10,000 contracts were sold within 20 minutes after 9 AM, causing the dollar-won exchange rate to drop by about 2 won. In the week of July 31, foreign investors had net bought 41,769 contracts but shifted their positions to selling in August. During the same period, the price of dollar futures fell from 1,429.50 won to 1,412.60 won. Market participants are paying attention to the phenomenon where price movements in the futures market appear before those in the spot market, and foreign exchange dealers explained that the concentration of volume in the futures market could put pressure on spot exchange rate quotes. There are also suggestions that the recent increase in trading volume may include not only simple arbitrage but also directional proprietary trading. While the foreign selling of dollar futures has contributed to the decline in the exchange rate, it cannot solely determine the next direction of the exchange rate based on futures supply and demand.