Won Breaks 1,480 per Dollar for First Time in 8 Months; BOK Chief Warns of Polarization Risk

The Korean won breached the 1,480-per-dollar level during intraday trading on Tuesday for the first time in about eight months, driven by broad dollar strength. Bank of Korea Governor Changyong Rhee said the current exchange rate situation "is not a traditional financial crisis, but it is not at a comfortable level either."

The won closed at 1,479.8 per dollar in the Seoul foreign exchange market, up 2.8 won from the previous day's close. This marks the highest level since April 9, when the won hit 1,484.1 amid market anxiety over sweeping tariff hikes by U.S. President Donald Trump. During the session, the won weakened to as much as 1,482.3, approaching the intraday high of 1,487.6 recorded on April 9.

Analysts attributed the won's decline to heightened risk-averse sentiment strengthening the dollar and continued selling of Korean equities by foreign investors. The U.S. Dollar Index (DXY), which measures the dollar against six major currencies, rose sharply from 98.172 in the morning to 98.470 in the afternoon.

"After U.S. employment data was released yesterday, the dollar gained in Asian trading on risk-off sentiment. Combined with net selling by foreigners in the domestic stock market and dollar settlement demand from importers, the exchange rate rose further," said Min Kyung-won, a researcher at Woori Bank.

The government has introduced various measures as the won-dollar exchange rate continues to soar, but the currency has shown little sign of stabilizing. Following the Bank of Korea's one-year extension of a $65 billion foreign exchange swap arrangement with the National Pension Service, market participants said the swap facility was actually activated on Tuesday. When activated, the swap allows the pension fund to obtain dollars through the BOK's foreign exchange reserves rather than purchasing them in the market, which is expected to help stabilize the exchange rate. However, the won's weakness persists as demand for dollars from investors continues.

Experts forecast the exchange rate will remain elevated above 1,450 won per dollar next year rather than reversing lower. In a survey conducted by The Seoul Economic Daily of 15 experts including foreign exchange specialists, economics professors, and heads of research centers at major securities firms, 60% of respondents said the won-dollar exchange rate would average between 1,460 and 1,500 won next year. Seven respondents (46.7%) predicted a range of 1,460-1,480 won, while two (20%) expected 1,480-1,500 won. Only six respondents said the rate would fall below 1,460 won.

"The recent exchange rate surge is the result of multiple complex factors including a global dollar shortage, increased overseas investment by Korean retail investors, corporate dollar hoarding, and uncertainty over investment in the United States," said Choi Nam-jin, a professor of economics and finance at Wonkwang University. "Since this cannot be resolved by addressing any single factor, the high exchange rate structure will persist for some time."

Governor Rhee described the recent exchange rate surge as "something that could be called a crisis, and a serious concern." At a press briefing on inflation target operations held at the BOK on Tuesday, he said the recent exchange rate rise "is not a traditional financial crisis," but added, "considering the significant impact of the exchange rate on prices and growth polarization, I do not think it is at a level where we can be at ease."

Rhee also repeatedly called for an expanded role for the National Pension Service. Regarding the "New Framework" being jointly pursued by foreign exchange authorities and the pension fund, he said, "I think the time has come for the National Pension Service to consider macroeconomic spillover effects when managing assets during overseas investments."

"Currently, the National Pension Service's returns are evaluated in won, and when funds are eventually brought back to Korea, the won will appreciate and returns will decline," he said. "We need to exchange views on what kind of returns should be used for compensation." His remarks effectively suggested that the pension fund needs to expand strategic currency hedging.