What's left to curb weak won?

A currency exchange board at a money changer in central Seoul displays foreign exchange rates, Sunday. Yonhap

Market attention is increasingly focused on what, if anything, can reverse the won’s slide as the won-dollar exchange rate has remained above the psychologically important 1,500 won level for more than a month despite easing geopolitical tensions, according to industry analysts, Monday.

With heavy foreign selling of Korean equities and a stronger U.S. dollar continuing to weigh on the won, concerns are growing that the currency’s weakness may be becoming structural rather than merely reflecting a temporary external shock.

The analysts said the key variables that will determine the won’s direction in the second half include whether the pressure of foreign investors’ selling eases, whether the Bank of Korea (BOK) raises its benchmark interest rate and whether an expected influx of U.S. dollars from SK hynix’s $30 billion American depositary receipt (ADR) listing on the Nasdaq next month materializes.

The government has also stepped up microlevel measures, including closer monitoring of the offshore non-deliverable forward (NDF) market and illegal foreign exchange transactions. If upward pressure on the exchange rate persists, authorities may also consider macroprudential policy measures aimed at managing financial institutions’ foreign currency transactions and capital flows.

According to BOK data, the won averaged 1,500.1 per U.S. dollar on an onshore closing basis between April 1 and last Friday. Unless the currency strengthens sharply in early trading this week, the second-quarter average is also likely to remain above the 1,500 level.

This would mark the first time since the first quarter of 1998 that the quarterly average has reached the 1,500-won range. At the time, during the Asian Financial Crisis, the figure stood at 1,596.8.

Even in 2009, when the won weakened sharply as a result of the worldwide financial crisis, the first-quarter average remained at 1,418.3 won, well below the 1,500 threshold.

On Monday, the won stayed in the 1,500-won range against the U.S. dollar, weakening 13.2 won to close at 1,545.2 in onshore trading.

Foreign investors’ heavy selling of Korean equities is emerging as a key driver of the won’s weakness. Offshore investors have sold a net 136.78 trillion won ($89 billion) of KOSPI shares from the beginning of the year through last Friday, equivalent to about one-third of the BOK’s full-year current account surplus forecast.

The outflows have boosted demand for U.S. dollars, offsetting much of the dollar inflow from the current account surplus and adding to pressure on the won.

Foreign selling, largely attributed to portfolio rebalancing following a sharp rally in large-cap stocks, is widely expected to continue in the near term.

“Foreign net selling could continue at 30 trillion to 40 trillion won a month over the next three months,” Seo Jeong-hoon, senior research fellow at Hana Bank, said. “It is hard to see a meaningful near-term decline in the exchange rate.”

Adding to pressure on the won is reduced expectations for U.S. Federal Reserve rate cuts, which have supported dollar strength. The dollar index rose as high as 101.798 intraday last Wednesday, its highest level since May 12, 2025.

Analysts note that foreign capital flows and corporate dollar demand, which drove the won lower in the second quarter, remain key variables for the currency’s outlook. They expect seasonal dollar demand related to settlements and dividend payments to ease after the end-June half-year closing, potentially helping to reduce supply-demand imbalances.

“It is difficult to determine when foreign selling will stabilize, but pressure could ease after the half-year period,” Lim Hwan-yeol, economist at Woori Bank, said. “With oil prices also stabilizing, the exchange rate could move toward the low-1,400 won range by year-end.”

Bank of Korea Governor Shin Hyun-song presents the 2026 first-half review of the inflation targeting framework at Hana Bank in Seoul, June 17. Yonhap

For the BOK, the benchmark interest rate remains a key policy tool to curb capital outflows and support the won by enhancing the attractiveness of domestic assets when raised.

Signals from the central bank have reinforced expectations of further tightening. At a ceremony marking the bank’s 76th anniversary on June 12, Governor Shin Hyun-song said there is a need to “raise interest rates in a timely manner with a focus on price stability.”

Markets are increasingly pricing in a rate hike, expected as early as next month’s Monetary Policy Board meeting, reacting to concerns over inflationary pressure from a weak currency and broader financial stability risks.

“Based on the latest policy board dot plot, tightening is expected to proceed faster than previously assumed, with hikes projected in July and October this year and January next year,” Park Jun-woo, analyst at Hana Securities, said.

SK hynix’s planned Nasdaq ADR listing on July 10, expected to raise about $30 billion, is also emerging as a key variable for the won’s outlook in the second half.

Market attention is focused on potential foreign exchange implications if part of the proceeds are later converted into won to finance domestic semiconductor investment, which could increase dollar supply in the onshore market.

In its disclosure, the chipmaker said the funds will be used for facility investment, suggesting that part of the capital may ultimately be brought back to Korea and converted into won.

In addition, expectations are growing that foreign exchange authorities will intensify their response as concerns over sustained won weakness deepen.

The government views foreign equity selling linked to the semiconductor boom and related dollar conversion demand as key drivers of the won’s decline, while also pointing to speculative activity in the offshore NDF market and illegal foreign exchange transactions as sources of added volatility.

NDFs are derivatives that settle only the difference between agreed forward and actual spot rates without physical delivery of currency.

Authorities have stepped up monitoring of speculative and market-distorting activity and vowed strict action if violations are found. Crackdowns on illegal transactions have also been strengthened by targeting underground remittances and crypto-based transfers.

However, as doubts grow over the effectiveness of microlevel measures in stabilizing the won, macroprudential tools are increasingly being viewed as a possible additional policy option.

Macroprudential measures are policy instruments aimed at managing capital flows and foreign exchange activity by financial institutions, designed to limit excessive volatility and smooth imbalances caused by sudden surges or reversals in cross-border capital movements.

At the same time, concerns remain that such measures, if introduced, could send a strong market signal, discourage legitimate corporate hedging and reduce market liquidity.

“Exchange rates should be market-determined in principle. But we would consider action in cases of excessive one-sided moves or speculative activity while ensuring market stability and normal corporate transactions,” a finance ministry official said.