The Korean won-U.S. dollar exchange rate surged to a two-month high as foreign investors offloaded large amounts of Korean stocks, leaving the won as the lone underperformer among major currencies despite broad-based dollar weakness. The won approached the 1,520 level even as the KOSPI hit a record high — an unusual divergence.
In Seoul's foreign exchange market on Tuesday, the won-dollar rate closed daytime trading at 1,516.4 won, up 12.1 won from the previous session. That marks the highest daytime closing level since April 2, when the rate stood at 1,519.7 won. The rate climbed to around 1,520 won during the session, nearing the threshold that typically draws foreign exchange authorities' attention.
The rise diverged from global dollar trends. The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, declined intraday, while the euro and the British pound strengthened. The won, however, failed to join the dollar-weakness move.
"The global dollar is broadly weak right now, but the won-dollar rate has climbed to around 1,520 won, indicating that won-specific weakness factors are playing a bigger role," said Wi Jae-hyun, an analyst at Kyobo Securities. "Foreign equity flows are the key driver behind the rate's rise."
On Tuesday, foreign investors net sold more than 6.5 trillion won worth of shares on the main bourse. Retail investors absorbed much of the selling, however, lifting the KOSPI 0.15% from the previous session to close at 8,801.49 — a record high for the third consecutive trading day.
Market participants say the exchange rate has recently become more sensitive to equity-market flows than to bond-market flows. Foreign investment in Korean bonds is largely accompanied by currency hedging, while equity investments are often unhedged, exerting a more direct impact on the foreign exchange market.
"The bond market is larger in size, but the impact on the foreign exchange market is much more direct from equity flows," Wi said. "Recently, even on a daily basis, the scale of capital flowing out of the stock market is overwhelming."
The renewed correlation between the Korean won and the Taiwan dollar has also drawn market attention. Both Korea and Taiwan have export structures centered on semiconductors and are seen as primary beneficiaries of expanded U.S. artificial intelligence (AI) investment. They also share large current account surpluses and high foreign-investor participation. As a result, the two currencies are increasingly moving in the same direction in response to shifts in global investor risk appetite, analysts said.
Some observers point out that the high share of foreign ownership in Korea's stock market is itself amplifying currency volatility. Foreign investors typically manage their country allocations within set ranges, meaning that when rising share prices increase Korea's weighting, mechanical profit-taking sales can be triggered.
"Right now, retail investors are actively absorbing selling in large-cap names such as Samsung Electronics (005930.KS) and SK hynix (000660.KS), which is keeping the index afloat," Wi said. "But on the currency side, foreign capital outflows are translating into downward pressure on the won."
Market participants expect vigilance from foreign exchange authorities to cap the rate's upside for the time being. Still, without a calming of foreign equity flows, there is no clear trigger for a turn toward won strength, they say.
"In the 1,520 to 1,530 won range, the authorities' defensive stance appears quite strong," Wi said. "But with foreign selling continuing, there is no clear catalyst for a sharp drop in the rate in the near term."
