Won’s freefall may remain bottomless amid stalled currency swap talks

An electronic trading board at Hana Bank headquarters in Seoul shows the won-dollar exchange rate at 1,428 won per dollar during intraday trading, Monday. Yonhap

The Korean won is falling at an accelerated pace against the U.S. dollar, repeatedly breaching the key 1,400 won threshold, with no bottom in sight amid prolonged Seoul-Washington currency swap talks.

The local currency closed at 1,425.8 won per dollar in daytime trading on Monday, weakening by 4.8 won from Friday’s close of 1,421 won.

It went below the 1,430 won mark for the first time since May 2 during intraday trading, opening at 1,430 won and falling to 1,434 won at one point — the weakest level in more than five months.

The rate only stabilized to the 1,420 won level after the Ministry of Economy and Finance and the Bank of Korea jointly issued a verbal intervention in the market later in the day.

“The foreign exchange authorities are closely monitoring the market with caution amid increased volatility of the won and the possibility of market imbalances,” the ministry and the central bank said in their first market intervention since April 2024.

Speaking at the National Assembly’s annual audit Monday, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said the government will “stably manage the exchange rate and foreign exchange market.”

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol speaks on the first day of the National Assembly’s 2025 audit in Yeouido, Seoul, Monday. Yonhap

Monday’s rollercoaster came less than a month after the won broke the 1,400 won level on Sept. 25, and just after it breached the 1,420 won level on Friday, plunging by 21 won to 1,421 won.

The 1,400 won mark is considered a psychologically worrisome level, typically seen during times of crisis, such as the 1997-98 Asian financial crisis, the 2008-09 global financial crisis and more recently during the fallout from former President Yoon Suk Yeol's martial law fiasco last December.

Under these circumstances, multiple analysts predicted that 1,400 won may no longer represent the bottom and that the local currency could continue its fall indefinitely.

Alongside U.S.-China trade tension, economists and other analysts attributed the won’s freefall to ongoing Korea-U.S. currency swap discussions, which have dragged on after beginning as part of a broader monthslong tariff dialogue, heightening concerns over Seoul’s foreign exchange reserve stability.

The U.S. demands a $350 billion upfront investment in exchange for lowering tariffs, prompting Korea to propose — so far unsuccessfully — an unlimited currency swap to protect its foreign reserves.

“The Korean currency may not have reached its bottom against the dollar, given that the talks show no clear sign of resolution,” DB Securities analyst Moon Hong-cheol said.

Moon described the stalled negotiations as “undoubtedly the biggest factor behind the won’s decline,” adding, “1,450 won could even act as the next resistance level unless a deal is struck.”

Shin Se-don, professor emeritus of economics at Sookmyung Women’s University, voiced a similar view, pointing out that the won has depreciated despite the dollar’s weakening trend globally.

He noted the won has depreciated by 2.9 percent against the dollar over the past month, which is excessive considering the dollar index — the value of a basket of six major foreign currencies, including the Japanese yen, British pound, Canadian dollar, Swedish krona, Swiss franc and the euro — rose by 1.6 percent during the same period.

Shin also referred to central bank data released Friday showing Korea’s foreign exchange reserves increased for the fourth consecutive month in September, totaling $422.02 billion.

This amount has kept Korea in the top 10 foreign reserve rankings for the sixth consecutive month.

“The won-dollar exchange rate trend is odd and can only be explained by investors’ concerns over the currency swap,” the professor said.

Hur Jun-young, an economics professor at Sogang University, said the won’s decline is likely to continue until the Asia-Pacific Economic Cooperation (APEC) Economic Leaders' Meeting, set to be held in Gyeongju, North Gyeongsang Province, from Oct. 31 to Nov. 1.

“I reckon the currency swap talks are possibly an issue that can be settled by the leaders of the two countries,” Hur said, noting U.S. President Donald Trump came into the tariff negotiations demanding the $350 billion upfront investment.

According to the Ministry of Foreign Affairs, Trump is scheduled to visit Korea for a one-night, two-day trip starting Oct. 29, during which he is expected to participate in a Korea-U.S. summit in Seoul before attending APEC events.

Market observers suggest that if the won continues its downward trend for the remainder of 2025, it could weaken past the 1998 annual average of 1,394.97 won seen during the IMF crisis and set a new all-time-low annual average.

As of Friday, the average exchange rate this year stood at 1,412.23 won per dollar.