Korean won to strengthen against dollar following Democrats' midterm sweep

The Korean won is expected to strengthen against the U.S. dollar after Democrats swept both chambers of Congress in the U.S. midterm elections, as political tensions in Washington and a potential sell-off in U.S. equities could weigh on the dollar, experts said Wednesday.

Democratic control of Congress is expected to complicate U.S. President Donald Trump's efforts to advance his economic agenda, including tax cuts and expanded government spending, while giving lawmakers greater power to scrutinize his administration's policies.

The prospect of a prolonged standoff between the White House and Congress could unsettle investors and undermine confidence in U.S. financial markets, said Shin Se-don, an economics professor at Sookmyung Women's University.

"A fierce confrontation between Congress and the Trump administration will be inevitable. Trump's economic policy initiatives could face setbacks as Democrats step up opposition to the administration's policies, potentially slowing growth across the broader U.S. economy," Shin said.

The political fallout could spill over into financial markets, particularly U.S. technology stocks tied to artificial intelligence (AI) and digital infrastructure. Shin said concerns over excessive investment in AI had already put technology stocks under pressure, and that political turmoil could further weigh on the broader U.S. stock market.

"Market correction would make U.S. financial assets less attractive to investors. A slowdown in investment could weaken the dollar and give the Korean won room to further appreciate," the professor said.

Shin also noted that the won-dollar exchange rate could be influenced more heavily by domestic factors, including Korea's current account balance and exporters' dollar selling.

The won has strengthened in recent months, with the won-dollar exchange rate falling from the 1,500 won range in June to the 1,300 won range in October.

The monthly average rate declined from 1,527.95 won per dollar in June to 1,488.92 won in July, 1,404.35 won in August, 1,358.75 won in September and 1,335.70 won in October, according to the Bank of Korea.

Kim Dae-jong, a professor of business administration at Sejong University, also expects the won to strengthen further in the near term following the U.S. midterm results, citing constraints on the Trump administration's economic policies.

"With Democrats controlling Congress, it will be harder for the Trump administration to borrow heavily to finance government spending or push through further tax cuts," Kim said. "That could ease pressure on U.S. Treasury yields and the won-dollar exchange rate."

A weaker dollar would lower Korea's import costs for crude oil and raw materials, helping ease inflationary pressure on energy and food prices, he said. But the stronger won could hurt Korean exporters by reducing the value of their dollar-denominated earnings when converted into won.

Kim, however, warned that the won could reverse course and weaken over the longer term if the momentum in the semiconductor export boom fades.

In recent months, strong chip exports, particularly memory semiconductors used in AI infrastructure, have been a major source of dollar inflows and helped support the won.

"In the longer term, a potential loss of momentum in the Trump administration's AI support policies under a Democratic-controlled Congress could dampen global investment sentiment toward AI and semiconductor markets, ultimately weighing on Korea's chip exports," Kim said.

"A slowdown in the semiconductor boom could curb Korea's export growth and reduce dollar inflows, potentially reversing the won's recent appreciation trend."