Korean won tumbles to 17-year low as oil prices, dollar surge

The won-dollar exchange rate alongside other major currencies is displayed at a currency exchange counter at Incheon International Airport, Monday, after it broke past 1,510 won per dollar. Korea Times photo by Shim Hyun-chul

The Korean currency tumbled to a 17-year low, sliding past 1,510 won per dollar Monday as the unresolved Middle East crisis continued to rattle global financial markets.

The growing tensions also affected the stock markets, as the country’s benchmark KOSPI, which topped 6,000 points for the first time on Feb. 25, fell more than 6 percent, slipping close to 5,400 amid heavy selling pressure.

In Seoul’s foreign exchange market, the exchange rate opened at 1,504.9 won per dollar, up 4.3 won from the previous session, and closed at 1,517.3 won, up 16.7 won, in onshore trading. This marks the local currency’s weakest level since March 10, 2009, during the global financial crisis, when it briefly weakened to 1,561 won per dollar.

The exchange rate had ended at 1,501 and 1,500.6 last Thursday and Friday, respectively, and has since weakened further, remaining above 1,500 won per dollar.

The won has come under pressure as heightened tensions involving the United States, Israel and Iran have driven investors toward safe-haven assets such as the dollar, compounded by Korea’s heavy reliance on Middle Eastern oil.

Concerns over the expansion of the war have increased after U.S. President Donald Trump warned Iran on Saturday (local time) to reopen the Strait of Hormuz within 48 hours or face strikes on its power facilities, prompting Tehran to vow to fully close the waterway if such attacks are carried out.

Another factor boosting demand for the dollar, a typical safe-haven asset, is the rise of international crude prices following Iran’s move to block the Strait of Hormuz, a crucial passageway for global oil transport.

Brent crude futures, the global oil benchmark, rose nearly 2 percent from the previous session, briefly reaching $114.35 a barrel in Korea on Monday morning. U.S. West Texas Intermediate (WTI) futures topped $100, climbing as high as $101.5 a barrel around 7 a.m.

The won has faced additional downward pressure as foreign investors exited the local equity market to cut risk exposure.

The KOSPI opened 3.48 percent lower at 5,580.15 from the previous close. A sidecar was triggered at 9:18 a.m., marking the sixth such measure this year, as foreign investors offloaded a net 335.7 billion won ($223 million) in early trading.

The index closed at 5,405.75, down 375.45 points, or 6.49 percent.

Amid growing concerns over the economic fallout from the won’s weakness, analysts are split over whether the exchange rate exceeding 1,500 won per dollar will settle as a new normal or retreat to the 1,400s.

Park Sang-hyun, a senior analyst at iM Securities, said, “A prolonged period of elevated oil prices would make it difficult to prevent the won from settling above 1,500 per dollar, though stronger government intervention could serve as a turning point.”

Kwon Ah-min, an analyst at NH Investment & Securities, stressed that the outlook for currency stability will largely hinge on whether global oil prices can be contained amid the prolonged conflict.

“If WTI crude stays above $100 a barrel, the won is likely to weaken further,” Kwon said. “But if prices stabilize in the $80-$90 range, the exchange rate could rebound to the mid-1,400 won level.”