Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Won-dollar rate feared to soar above 1,400 after Trump's win
Former U.S. President and Republican presidential candidate Donald Trump, left, dances as former first lady Melania Trump looks on after speaking at an election night watch party, Nov. 6, in West Palm Beach, Fla. AP-Yonhap
By Yi Whan-woo
Former US leader's policies to adversely affect Seoul's trade, currency market
The Korean won is expected to weaken beyond the 1,400 level against the U.S. dollar following former U.S. President Donald Trump’s victory in the 2024 presidential election, according to analysts.
The outlook arises from Trump’s core economic policies, which are aimed at strengthening an already strong dollar, despite his intention to lower its value to boost the price competitiveness of American manufactured goods abroad.
The Korean currency traded at 1,396.2 won per dollar as of 3:30 p.m., Wednesday, after weakening to 1,399.7 won per dollar around noon following a breaking news report that Trump is likely to win.
“The won is most likely to slide past the psychological threshold of 1,400, especially considering that Trump's pledges have been rattling Seoul’s currency market even before his victory,” Hana Bank researcher Seo Jung-hoon said.
The won had been nearing the 1,400-per-dollar mark even weeks before the U.S. presidential election, sparking concerns about the Korean economy, as the won-dollar exchange rate has previously crossed this threshold only during times of financial crisis.
The weakened won is widely linked to Trump’s trade protectionism pledge, which includes a 20 percent tariff on all imported goods and an especially steep 60 percent tariff on imports from China.
“The heavier tariff means less competence over exports from Korea, whose economy is largely dependent on trade,” Seo said.
Seo noted that Trump’s pledge to impose a 60 percent tariff on Chinese imports could further harm the Korean economy, as Korea exports intermediate goods to China.
Intermediate goods made up 78.4 percent of Korea’s total exports to China in 2023, according to the Korea International Trade Association (KITA).
The high tariff rate also poses issues for the U.S., as it would drive up goods prices and put renewed upward pressure on inflation.
“This means the U.S. Federal Reserve will put the brakes on its rate-cutting cycle, drawing more investors to invest in dollars instead of the won,” Daishin Securities analyst Lee Ju-won said. “And it is possible the won may weaken above the 1,400 level.”
The analyst observed that after years of pursuing a hawkish monetary campaign, the Fed transitioned to a dovish policy in September by reducing its benchmark interest rate by 0.50 percentage point.
The decision came as inflation in the U.S. has been inching close to the Fed’s 2 percent target.
For instance, consumer prices grew 2.4 percent from a year earlier in September, compared to a 2.5 percent year-on-year gain in August.
The Bank of Korea (BOK) also ended its yearslong monetary tightening and cut the base rate by 0.25 percentage point in October.
The BOK's rate of 3.25 percent remains lower than the Fed's rate, which ranges from 4.75 percent to 5 percent.
Dealers watch monitors at Hana Bank headquarters in downtown Seoul, Wednesday, as a screen behind them displays U.S. presidential election news. With former U.S. President Donald Trump’s potential victory, the main KOSPI index closed at 2,563.51, down 0.52 percent from the previous session. Yonhap
Under these circumstances, Trump has been challenging the Fed’s political independence by signaling various plans to influence monetary policy.
“The threat will add to economic uncertainty as witnessed when Trump was formerly in office, prompting more investors to pull out of emerging markets in search of safe haven assets,” Jin Ok-hee, a research fellow at Hana Institute of Finance, said.
Jin noted that foreign investors in Seoul already net sold 3.26 trillion won worth of shares on the benchmark KOSPI.
Consequently, the economist projected that the won could slide to as much as 1,450 per dollar, noting that the local currency depreciated by 40 to 50 won against the dollar when Trump was first elected in 2016.
Regarding inflation, Hanyang University economics professor Ha Joon-kyung predicted that Trump’s anti-immigrant policy could lead to a tighter job market, potentially resulting in wage and price pressures.
“The Fed apparently would not lower its base in such economic circumstances, which, in turn, would weigh on the value of the Korean currency,” the professor said.
A KITA researcher, speaking on the condition of anonymity, stated that Trump’s possible return could "stir up businesses" that were initiated by major Korean companies during the Joe Biden administration.
“These companies contribute significantly to the Korean economy, and the uncertain outlook for their U.S. operations is undoubtedly a factor in the won's depreciation past the 1,400 level,” he said.