The won-dollar exchange rate surged past 1,550 won intraday, reaching its highest level since the global financial crisis, but President Lee Jae-myung described the recent won weakness as a temporary phenomenon, emphasizing market stability. The government also views foreign capital outflows and speculative trading in offshore markets as having fueled the rise, and is stepping up its response.
In the Seoul foreign exchange market on Monday, the won-dollar rate opened at 1,555.2 won, up 16.1 won from the previous trading day. The dollar's strength, which weighed on the won, is attributed to a retreat in expectations for a U.S. Federal Reserve rate cut after the May employment data came in stronger than expected.
At a press conference marking his first year in office that day, President Lee said, "It is true that the exchange rate is at a high level, but I judge it to be a temporary phenomenon." He added, "As a record-high current account surplus continues, the conditions for dollar supply are sufficient." Regarding the recent rise in the exchange rate, he explained, "As the domestic stock market has surged in a short period, foreign investors are adjusting their portfolios," adding, "There is an aspect in which demand for dollar conversion increases after stock sales, pushing up the exchange rate."
Indeed, foreign investors continued net selling for 20 consecutive trading days from the 7th of last month to the 5th of this month, disposing of 77.6 trillion won worth of domestic stocks. During this period, the won-dollar rate jumped from the 1,480 won range to the 1,530 won range. In particular, as the selling concentrated on top market-cap semiconductor stocks such as Samsung Electronics and SK hynix, the foreign ownership ratio fell from 50.3% to 47.0% for Samsung Electronics and from 53.0% to 51.0% for SK hynix.
The government, however, does not interpret the recent rise in the exchange rate as a structural sign of instability like a foreign exchange crisis. This is based on its judgment that the current account surplus continues thanks to strong exports and that foreign currency liquidity is being maintained at a stable level.
Instead, authorities are closely watching whether speculative trading centered on the non-deliverable forward (NDF) market is expanding exchange rate volatility. Accordingly, they plan to pursue a so-called "two-track" response, channeling normal foreign exchange hedging demand into the domestic deliverable forward (DF) market while strengthening monitoring and reporting systems for trades that fuel market herding.
After the authorities' warning message emerged, the foreign exchange market showed signs of quickly stabilizing. The foreign exchange authorities said that day, "We will respond strongly to excessive volatility and one-directional herding relative to fundamentals." This confirmed their commitment to market stability for the second consecutive day, following the previous day when economic and financial chiefs held an emergency meeting and announced a policy of strictly responding to speculative trading. With the addition of forward selling volume from the National Pension Service, the exchange rate fell into the 1,530 won range intraday and ultimately closed at 1,535.0 won, down 4.1 won from the previous trading day.
The bond market also showed a weakening trend. The yield on three-year treasury bonds rose 5.8 basis points from the previous trading day to an annual 3.940%, marking the highest level since November 2023, while the 10-year yield also rose 9.4 basis points to an annual 4.348%. Yields are analyzed as having faced upward pressure overall, as concerns over prolonged U.S. tightening coincided with expectations of fiscal expansion.
