President Lee Jae-myung described the recent surge in the won-dollar exchange rate, reflecting a decline in the won's value, as a "temporary phenomenon," expressing confidence in market stability. The government also concluded that foreign capital outflows and offshore speculative trading are temporarily driving the exchange rate higher, and decided to raise the level of its response.
In the Seoul foreign exchange market Monday, the won-dollar rate opened at 1,555.2 won, up 16.1 won from the previous trading day. This marks the highest level in about 17 years since March 2009, during the global financial crisis. The move is attributed to deepening dollar strength as expectations for a Federal Reserve rate cut weakened following strong U.S. employment data for May.
At a press conference marking the first anniversary of his inauguration that day, Lee said, "While it is true the exchange rate is high, I view it as temporary." He added, "An unprecedented current account surplus is continuing, so the dollar supply is very abundant." He went on to explain, "The recent rise in the exchange rate is largely due to foreign investors adjusting their portfolio weightings following the sharp rise in the domestic stock market," noting that "when they sell stocks, they must exchange the proceeds into dollars, which becomes a factor pushing the exchange rate up."
In fact, from the 7th of last month through the 5th of this month, foreign investors net-sold domestic stocks for 20 consecutive trading days, selling 77.6 trillion won worth. Some in the market believe that additional selling pressure could gradually ease, as recent selling has been concentrated in large-cap semiconductor stocks such as Samsung Electronics and SK hynix. Foreign ownership has also declined from 50.3% to 47% for Samsung Electronics and from 53% to 51% for SK hynix.
However, authorities judge that speculative trading, centered on the non-deliverable forward (NDF) market, has increased volatility during the recent rise in the exchange rate. In response, they plan to pursue a "two-track" approach, steering normal currency hedging demand toward the domestic deliverable forward (DF) market while strengthening monitoring and reporting systems for speculative trades.
Meanwhile, the exchange rate quickly gave back its intraday gains after the government's verbal intervention that day. Foreign exchange authorities said, "We will never tolerate excessive volatility and one-sided movements relative to fundamentals, and will respond forcefully." This marked the second consecutive day of demonstrating a commitment to market stability, following an emergency meeting of economic and financial chiefs the previous day, at which they announced a policy of strictly responding to exchange rate herding and speculative trading. Subsequently, as forward sales from the National Pension Service also entered the market, the won-dollar rate fell to the 1,530-won range during the session and ultimately closed at 1,535.0 won, down 4.1 won from the previous trading day.
