Currency rally fuels hope for exchange rate below 1,300 won per dollar
Exchange rates are displayed on a board at a currency exchange booth in Myeong-dong, Seoul, Monday. Newsis
The Korean won has strengthened sharply against the U.S. dollar in recent months, raising expectations that the won-dollar exchange rate could fall below 1,300 won per dollar and enter the 1,200 won range, market watchers said Monday.
On Seoul's foreign exchange market, the exchange rate closed at 1,323.1 won per dollar, down 1.5 won from the previous session.
The exchange rate has fallen by more than 200 won from its monthly average of 1,528 won in June, as strong semiconductor exports have helped offset dollar demand from foreign investors selling Korean stocks.
The won's recovery is also reflected in its nominal effective exchange rate (NEER), which measures the currency's value against those of its major trading partners without adjusting for inflation.
According to the Bank for International Settlements, the won's NEER index rose to 94.83 as of last Tuesday, up from 91.99 at the end of September. This marks the highest level since Oct. 9, 2024, when the index was 94.91.
The NEER, which uses 2020 as its base year with a value of 100, fell to 81.99 in June. At the time, the won-dollar exchange rate neared 1,600 won per dollar amid heavy foreign selling of Korean stocks.
The monthly average won-dollar exchange rate fell to 1,488.9 won in July, 1,404.4 won in August and 1,358.8 won in September. October's average through last Friday stood at 1,337.2 won, the lowest since September 2024.
Bank of Korea Gov. Shin Hyun-song has pointed to the won's potential for further strengthening, saying it remains undervalued based on effective exchange rate measures.
"Whether measured by the won-dollar exchange rate or other effective exchange rates, the won remains weaker than in previous years," Shin said during a press conference last Thursday, noting that the effective exchange rate still remained below 100.
Cha Young-hoo, an analyst at Eugene Investment & Securities, said a record current account surplus and increased dollar inflows were putting downward pressure on the won-dollar exchange rate.
"The exchange rate is likely to find a floor below 1,300 won per dollar, and we expect it to move between 1,250 won and 1,420 won next year," Cha said.
Still, some analysts say that the won's rally may temporarily lose momentum in the near term.
Park Sang-hyun, an analyst at iM Securities, said the won-dollar exchange rate could take a breather after falling into the 1,320 won range.
"The exchange rate could become more volatile depending on external uncertainties and the scale of foreign investors' net selling in the Korean stock market," he said.
The U.S. Federal Reserve's policy meeting on Tuesday and Wednesday is another factor that could affect the won's direction. While the Fed is widely expected to leave rates unchanged, markets will be watching for clues about its policy outlook.
"If the Fed takes a more hawkish-than-expected tone at its meeting, that would put upward pressure on the won-dollar exchange rate," Park said.