Jun Ji-hye, a reporter at the finance desk of The Korea Times, focuses primarily on economic policy and government agencies, mainly covering the Ministry of Finance and Economy, the Ministry of Budget and Planning, the National Tax Service and the Korea Customs Service. She previously covered financial authorities, including the Financial Services Commission and the Financial Supervisory Service, and earlier worked on the political, city and business desks, reporting on a wide range of issues.
Won tests foothold in 1,400s as dollar risks linger
A Hana Bank employee sorts U.S. dollar banknotes at the bank’s currency counterfeiting response center in Seoul, July 3. Yonhap
By Jun Ji-hye
The Korean won has recovered from its weakest level since the Asian financial crisis, trading below the psychologically important 1,500-won-per-dollar level for the first time in three weeks, analysts said Wednesday.
The move was driven by easing foreign investor rebalancing and expectations of increased dollar inflows, they said.
Still, they cautioned that further gains in the won may be limited, with geopolitical tensions and the possibility of higher U.S. interest rates likely to keep the dollar supported.
The won closed at 1,555.8 per dollar on July 2, its weakest level since March 2009 based on onshore trading, according to the Seoul foreign exchange market.
It fell below the 1,500 won mark on July 8, closing at 1,498.5, before briefly rebounding to 1,506.1 won the following day. The currency strengthened again to finish at 1,493 on July 14 and has since remained in the upper-1,400 won range. On Wednesday, it ended onshore trading at 1,480.1.
The average won-dollar exchange rate based on onshore closing prices stood at 1,488.6 won in the third week of July, falling below the 1,500 won level for the first time since the second week of May, when it averaged 1,488.8 won.
Analysts attributed the recent pullback to a slowdown in mechanical portfolio rebalancing by offshore investors. Previously, sharp gains in the domestic stock market had prompted foreign funds to rebalance their portfolios, sparking strong demand for dollars to remit stock proceeds abroad and driving up the exchange rate.
Foreign investors bought a net 516.1 billion won ($349 million) worth of Korean shares on Monday, followed by another 295 billion won in net purchases on Tuesday, marking two consecutive sessions of net buying.
SK hynix’s massive $26.5 billion American depositary receipt (ADR) listing on the Nasdaq on July 10 also emerged as a major turning point, fueling expectations of a significant dollar inflow into the domestic financial system.
“Expectations that a substantial portion of the ADR proceeds would be converted into local currency quickly cooled preemptive dollar buying among corporations and investors,” Oh Jae-young, an analyst at KB Securities, said. “The exchange rate began its decline even before the July 10 listing and the July 14 settlement date, suggesting the market was moving ahead of the expected dollar supply.”
The brokerage expects the won-dollar rate to remain in the 1,470-1,490 won range in the short term, with a break below the 1,480 won support level potentially paving the way for a decline toward the 1,440-1,450 won levels seen before the U.S.-Iran conflict.
Still, geopolitical uncertainty continues to weigh on the won, with a renewed escalation in the U.S.-Iran conflict potentially putting further upward pressure on the exchange rate.
Higher tensions in the Middle East could drive up oil prices, fueling U.S. inflation concerns and reducing expectations for Federal Reserve rate cuts. Such expectations would strengthen the dollar and add further pressure on the Korean currency.
“With no clear catalyst driving the dollar at the moment, whether oil prices rise further depending on the trajectory of the Iran conflict will be the key variable,” Park Sang-hyun, an analyst at iM Securities, said. “If the conflict drags on as the U.S. and Iran intensify their attacks, a further rise in oil prices would be inevitable, adding to upward pressure on the dollar.”