Won Plunges 26 Won Against Dollar Amid US-Iran War Escalation

The Korean won plunged more than 26 won against the US dollar in a single day as fears of all-out war between the United States and Iran intensified. Risk-off sentiment gripped the foreign exchange market as geopolitical risks from the Middle East expanded, triggering rapid dollar buying.

Market analysts suggest the exchange rate ceiling should be extended to 1,500 won depending on how the situation unfolds. Volatility is expected to remain elevated if the conflict drags on and oil prices continue to surge.

The won closed at 1,466.1 won per dollar on the Seoul foreign exchange market on the 3rd, up 26.4 won from the previous trading day. This marks the highest level since 1,469.5 won recorded on February 6. The currency opened at 1,462.3 won, up 22.6 won, and climbed as high as 1,467.8 won during intraday trading.

The surge follows the US military's "Epic Fury" operation. After President Donald Trump ordered the elimination of key Iranian leadership figures, Iran's Islamic Revolutionary Guard Corps (IRGC) declared the closure of the Strait of Hormuz, warning it would "burn any vessel attempting passage." The escalating confrontation drove a surge in safe-haven demand, pushing the Dollar Index (DXY) above 98.7.

Rising oil prices also fueled the stronger dollar. West Texas Intermediate (WTI) crude jumped more than 12% intraday to above $71 per barrel after the Strait of Hormuz—through which approximately 20% of global oil consumption passes—was blocked. Expectations that elevated oil prices could increase inflationary pressure and slow the Federal Reserve's pace of rate cuts supported dollar strength. Foreign investors' selling of Korean equities also added upward pressure on the exchange rate.

Experts say the won-dollar rate could breach 1,500 won if the situation persists for several weeks. KB Kookmin Bank estimates a 50% probability of the exchange rate reaching 1,500 won if the war continues for three to four weeks.

However, some note that intervention by foreign exchange authorities near yearly highs, currency hedging by the National Pension Service, and dollar selling by exporters could cap further gains.

"High volatility with significant daily swings is likely to continue for the time being, driven by news flow from the Middle East," said Lee Young-hwa, an economist at Busan Bank.