The Korean won is whipsawing again as war in the Middle East rattles currency markets.
The won opened at 1,462.3 per dollar on the Seoul foreign exchange market Monday, up 22.6 won from the previous session. The currency breached the 1,460 level intraday for the first time since Jan. 10. Some analysts now see the possibility of the won weakening past the 1,500 threshold after a period of relative stability.
The average exchange rate last month was 1,448.4 won per dollar, according to Bank of Korea data released Sunday. That marked the first time since October that the monthly average fell below 1,450 won.
The won had been expected to strengthen further on robust semiconductor exports, but the recent outbreak of hostilities between the United States and Iran is adding upward pressure on the exchange rate.
KB Kookmin Bank identified three key variables for currency movements in a report titled "U.S.-Iran Conflict and Future Scenarios" published Saturday: the next Iranian government's diplomatic stance toward Washington, whether Iranian-backed forces resume maritime attacks, and the potential for prolonged disruptions to Middle Eastern oil production.
The bank assigned a 30% probability to a scenario where turmoil in Iran subsides quickly, limiting the impact to a short-term shock with the won trading between 1,430 and 1,470. A 50% probability was given to a protracted standoff involving weeks of airstrikes and counterattacks, which would push the exchange rate to the 1,470-1,500 range.
If oil refineries in Iran or neighboring countries come under attack, the won could surge to between 1,490 and 1,540, KB Kookmin said, assigning a 20% probability to that scenario.
Still, some analysts expect the currency to stabilize quickly even if it weakens further.
"The Iran-triggered Middle East crisis is a risk-off factor that could trigger a Kospi correction, daily net foreign selling of around 500 billion won, and push the dollar-won rate toward 1,480 in the short term," said Kim Doo-eon, a researcher at Hana Securities. "However, with trading momentum shifting to retail investors and ETFs, and structural tailwinds from semiconductor earnings growth and commercial law revisions centered on share buyback cancellations remaining intact, the shock is likely to be temporary and recovery swift."