What stands out in the recent surge of the won-dollar exchange rate is that the won's decline is relatively larger than that of other currencies. Since the outbreak of war in the Middle East, major currencies have broadly weakened against the U.S. dollar, but the depreciation of the won has been overwhelmingly steep. The result stems from a confluence of negative factors hitting at once: an economic structure heavily dependent on Middle Eastern energy, concerns over prolonged high interest rates in the United States, foreign selling of stocks, and a weak yen. With no factors in sight to reverse the won's weakness for the time being, some forecasts suggest the exchange rate could climb as high as 1,560 won.
According to the Seoul foreign exchange market Thursday, the value of the won against the U.S. dollar rose for three consecutive trading days starting June 2, jumping an average of 11.6 won per day. On this day, the rate opened at 1,529 won and rose to 1,549.1 won around 10:27 a.m., approaching 1,550 won. This is the highest level since March 10, 2009, during the financial crisis, when it reached an intraday high of 1,561.0 won. As real demand for the dollar sharply pushed up the exchange rate, verbal intervention by foreign exchange authorities has failed to take effect.
The exchange rate applied when customers buy dollars at bank counters rose even higher. Woori Bank's Incheon Airport branch posted a cash selling rate of 1,603 won per dollar on this day. The cash selling rate is the rate applied when customers buy dollar cash at a bank. The "1 dollar = 1,600 won" level, seen only during the financial crisis, has reappeared. The yen cash selling rate also surpassed 1,000 won, reaching 1,005 won.
The problem is that the won is becoming more of a selling target than other countries' currencies. From February 27, just before the outbreak of war in the Middle East, to June 5, the value of the won fell 6.9%. Over the same period, the decline far exceeds that of the Japanese yen (-2.5%), euro (-1.7%), British pound (-0.5%), and Taiwan dollar (-0.4%), as well as the Indian rupee (-5.1%).
Experts analyze that the result reflects a combination of factors weighing on the won across all aspects, including supply and demand and the external environment. Choi Gyu-ho, a researcher at Hana Investment & Securities, explained, "There is not a single environment favorable to the won, from an economic structure vulnerable to Middle Eastern geopolitical risks, to expectations of U.S. interest rate hikes amid inflation concerns, to an expansion in the scale of foreign net selling due to rebalancing."
In particular, these variables are not easily resolved in the short term, and with concerns over tariffs on the United States reigniting recently, observers expect the won-dollar exchange rate to fluctuate between 1,500 and 1,560 won for the time being.
Jeon Gyu-yeon, a researcher at Hana Securities, forecast, "For the exchange rate to fall, oil price stabilization through the normalization of the Strait of Hormuz and foreign capital inflows must come first, but this is not easy." She added, "The reimposition of U.S. tariffs on major countries is scheduled for the second half of the year, and there are also variables such as the launch of the Korea-U.S. Strategic Investment Corporation under the Special Act on Investment in the United States, and a potential surge in overseas investment demand from relatively quiet retail investors in U.S. stocks, making it a difficult environment for the won to come under upward pressure."
