[Weekend Money] Why Won't the Exchange Rate Fall? "Could Remain in the 1,500 Won per Dollar Range"

Pressure on the Won Remains Despite Easing Middle East Risks

Ongoing Foreign Stock Selling and U.S. Investment Commitments Weigh on Currency

There is a prevailing outlook that, even if the Korean won exchange rate against the U.S. dollar undergoes short-term adjustments due to previous expectations, the upward trend will likely continue. Analysts suggest that ongoing factors such as foreign investors selling Korean stocks and increased investment in the United States, which drive up demand for dollars, could anchor the exchange rate in the 1,500 won range.

According to the report "Focus on Week: Why Won/Dollar Exchange Rate Won't Fall?" released on Friday, June 5 by IBK Investment & Securities, recent exchange rate fluctuations are believed to be more attributable to Middle East risks and large-scale stock sales by foreign investors, rather than traditional variables like interest rate differentials or other conventional factors.

Yonhap News Agency

Jung Yongtaek, a researcher at IBK Investment & Securities who authored the report, stated, "Despite the stock market hitting new record highs, a significant current account surplus, upward revisions to GDP growth forecasts, and a much narrower interest rate gap with the United States, the dollar-won exchange rate still remains above 1,500 won. Warnings from the monetary authorities about excessive one-sided movements appear to have little effect, as the upside risk is being reflected even more strongly, pushing the peak higher."

Researcher Jung predicted that the factors driving these exchange rate fluctuations are unlikely to disappear in the immediate future. He explained, "While it seems unlikely that Middle East-related factors will persist in the long term, the current unstable situation is likely to continue until agreements are clearly formalized, as recent developments show." He also noted, "The foreign investor selling trend in the stock market is also likely to continue for the time being. This is not because investors have a negative outlook on semiconductors or the prospects of local industries, but rather it is a portfolio adjustment to resolve the overbought status of the Korean stock market."

He further commented, "Even if the recent short-term factors subside, the exchange rate is unlikely to fall easily due to other factors, such as large-scale investment commitments in the United States. Although this is not yet reflected in the numbers, there is another factor putting pressure on won liquidity—namely, these significant investment pledges to the U.S. Even before the investments are actually executed, this is already creating psychological pressure on economic agents and market participants."

Jung also assessed, "Given that the upper band of the short-term trend channel is around 1,530 won, it is more likely that the exchange rate will experience temporary pullbacks due to prior issues, rather than a sharp rise in the near term. Nevertheless, the trend channel itself continues to rise, maintaining a strong upward trajectory." He emphasized, "This means the exchange rate could stabilize in the 1,500 won range."

However, he added, "The real issue is not the specific level of 1,500 won or any particular exchange rate, but rather the various side effects that occur when the rate shifts rapidly and economic agents cannot keep up with the change. There is no need to overly interpret or be excessively anxious about the 1,500 won level. Considering that the long-term trend of the real effective exchange rate is also downward for Japan, China, and Europe, the depreciation of the won is not necessarily a negative development."

This content was produced with the assistance of AI translation services.