Won Plunges 2.5% Since Middle East Crisis, Weakest Among Major Currencies

The Korean won has emerged as the weakest major currency, falling more sharply than other nations' currencies amid the U.S.-Iran war situation.

According to international financial markets on the 4th, the won depreciated approximately 2.5% against the dollar from October 27—the day before the U.S. and Israeli airstrikes on Iran began—through that day. Excluding the Hungarian forint (-4.9%), Chilean peso (-3.5%), and Mexican peso (-2.8%), this marks the steepest decline among major trading partners' currencies during the same period. The drop is particularly notable compared to the Taiwan dollar (-1.3%) and Japanese yen (-0.9%), currencies of economies that, like South Korea, are highly export-dependent and heavily reliant on Middle Eastern crude oil imports. The won's weakness has intensified relative to peers despite the common headwind of elevated oil prices stemming from the Middle East.

In extended evening trading on the 3rd, the won-dollar exchange rate surged to 1,506.5 won, breaching 1,500 won for the first time in approximately 17 years since the 2009 global financial crisis. The rate closed at 1,476.2 won in daytime trading that day, up 10.1 won from the previous session, marking the third consecutive daily increase. During intraday trading, it climbed as high as 1,484.2 won.

Market analysts attribute the pressure to the won's vulnerability to external shocks, compounded by recent Korean equity market corrections that have prompted expanded foreign selling of stocks and increased dollar conversion demand. Steven Chu, chief strategist at Bloomberg, noted that "continued overseas investment by Korean residents and obligations to implement investment agreements with the U.S. are also exerting structural downward pressure."

The Bank of Korea convened a task force meeting to assess the Middle East situation that day, stating that "dollar liquidity is ample and external borrowing capacity remains at stable levels," adding that it would "respond in a timely manner to prevent market sentiment from becoming one-sided."