Korea's US FX monitoring list status has limited market impact

The front page of the U.S. Treasury Department's “Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” / Captured from the Treasury Department website

The U.S. government’s decision to keep Korea on its foreign exchange monitoring list is unlikely to have a significant immediate impact on the exchange rate, market analysts said Friday.

Still, as both the U.S. and Korean governments continue to signal that the Korean won’s recent depreciation against the U.S. dollar is "excessive," expectations are growing that upward pressure on the local currency could build.

Earlier in the day, the U.S. Treasury Department kept Seoul on its list of countries monitored for their foreign exchange policies, releasing the updated list in its semiannual "Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States."

Korea was taken off the list in November 2023 for the first time in more than seven years, but was reinstated beginning in November 2024, ahead of the inauguration of the Donald Trump administration.

“In support of President Trump’s America First trade policy, starting with this report, Treasury is strengthening its analysis of trading partners’ currency policies and practices,” Treasury Secretary Scott Bessent said. “These enhanced analyses inform Treasury’s assessments of the exchange rate policies and practices of the United States’ major trading partners.”

A senior official at the presidential office said later in the day that the decision had been made in a largely “mechanical manner,” in line with the U.S. Treasury’s evaluation framework.

“The Treasury reiterated in its report that the recent depreciation of the won does not correspond to Korea’s economic fundamentals. Close communication between the two governments will continue,” the official said.

The Ministry of Economy and Finance conveyed a similar message, saying the latest report reflects Washington’s view that the won has moved excessively in a prolonged, one-sided weakening trend since the second half of last year.

The U.S. Treasury said in the report that additional weakness in the won in the latter half of 2025 did not align with Korea’s strong economic fundamentals, a stance widely interpreted as backing the Korean authorities’ assessment.

The report also noted that capital outflows from the private sector were the main source of downward pressure on the won, driven largely by increased overseas equity investment by Korean individual investors.

Structural factors were cited, including the dominance of large corporations and conservative dividend policies. Limited return prospects in the domestic capital market have prompted both households and institutional investors to move capital abroad, adding to depreciation pressure on the won, it said.

Market analysts said that Korea’s inclusion on the latest monitoring list is expected to have only a limited short-term impact on the exchange rate, while pointing to a growing likelihood that the won could face appreciation pressure in the period ahead.

“The impact of being placed on the list should be minimal,” said Park Sang-hyun, an analyst at iM Securities. “What matters more is the U.S. Treasury’s judgment that the won is undervalued relative to fundamentals, a view that has also been echoed by the presidential office. That assessment suggests upward pressure on the currency.”

Lee Min-hyuk, chief economist at KB Kookmin Bank, also played down the near-term impact, noting that the issue is not new for markets.

“Given that the monitoring list designation is a familiar issue, it is unlikely to have a major effect,” he said. “Still, with U.S. Treasury officials, including Secretary Bessent, having openly described the won’s weakness as excessive, a view reiterated in the latest report, markets may interpret this as unease in Washington over current exchange-rate levels, potentially capping further increases in the rate.”

In the Seoul foreign exchange market on Friday, the won-dollar exchange rate rose 13.2 won to 1,439.5 won.